MASTER 
NEGATIVE 
NO.  94-821 21 


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Author: 


Newcomb,  Harry  Turner 


Title: 


Rebates 


Place: 


[New  Haven?] 


Date: 


[1907] 


MASTER   NEGATIVE   # 


COLUMBIA  UNIVERSITY  LIBRARIES 
PRESERVATIOiN  DIVISION 

BIBLIOGRAPHIC  MICROFORM  TARGET 


ORIGINAL  MATERIAL  AS  FILMED  -    EXISTING  BIBLIOGRAPHIC  RECORD 


•0SINCS8 

530.7 

N43 


Newcomb,  Harry  Turner,  1867- 

Rebates,  by  H.  T.  Newcomb  ...    [New  Haven?  Conn., 
1907] 

cover-title,  [119i-15S  p.    23i'". 

"Reprinted  from  the  Yale  review  of  August,  1907." 


1.  Railroads— U.  S.— Rates.        i.  Title. 


Library  of  Congress 
Copy  2. 


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MAIN  ENTRY:    Newcomb.  Harrv  Turner 

Rebates 


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BY 

H.  T.  NEWCOMB 

Of  the  Bar  of  the  District  of  Columbia 

Author  of  "Railway  Economics,"  "The  Postal  Deficit,"  "Some  Consequences 
of  the  Trust  Movement,"    "Recent  Phases  of  the  Labor  Problem,"    "The 
Federal  Courts  and  the  Orders  of  the   Interstate  Commerce  Commis- 
sion,"  "The  Facts  About  Railroad  Rates,"   "The  New   Interstate 
Commerce  Law,"  "A  Conser\rative  Trust  Policy,"  "Public  Own- 
ership  and    the    Wage-Earner,"    "Railway   Capitalization," 

Etc.,  Etc. 


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REBATES. 

CONTENTS. 

Nature  and  method  of  discrimination,  p.  119;  rebates,  p.  120;  early  his- 
tory of  rebates,  p.  120;  elasticity  of  early  system,  p.  122;  the  Interstate 
Commerce  Act,  p.  122  ;  amendments  of  1889  to  include  shippers  and  provide 
prison  penalties,  p.  124;  unexpected  effect  of  including  shippers,  p.  125; 
shippers  refusing  to  testify  upheld  by  the  courts,  p.  126  ;  consequent  new 
legislation  of  1893,  p.  127 ;  opinion  of  Judge  Grosscup,  p.  128 ;  late  decision 
of  Supreme  Court  upholds  the  new  law,  p.  130 ;  power  to  demand  books 
finally  upheld,  p.  130  ;  expectation  that  rebates  would  cease  not  fulfilled,  p. 
134 ;  Elkins  Law,  p.  135  ;  summary  of  legislation,  p.  137 ;  varying  opinion 
of  the  Commission  as  to  the  effectiveness  of  legislation,  p.  138;  melancholy 
history  of  violations,  p.  140;  relative  success  of  policy  of  persuasion,  p.  143; 
working  of  the  Elkins  Law,  p.  147;  report  of  Secretary  Moody  reviewing 
history  of  prosecutions  under  the  various  acts,  p.  148;  real  evil  lies  in 
secrecy,  p.  151 ;  necessity  of  discrimination  according  to  size  of  shipment, 
p.  152. 

TO  discriminate  is,  according  to  the  lexicographers,  to  recog- 
nize differences.  Apparently,  therefore,  to  discriminate  in 
railway  rates  is  to  recognize  differences  in  traffic  conditions  and 
to  make  the  charges  for  railway  services  conform  to  such  dif- 
ferences. Such  discrir  lination  is  unquestionably  beneficial,  for, 
in  the  language  of  an  eminent  jurist  quoted  by  Professor  Ely, 
''nothing  can  be  more  unequal  than  the  equal  treatment  of 
unequals." 

Unjustly  to  discriminate  in  railway  rates  is,  however,  as  bane- 
ful as  just  discrimination  is  beneficial.  A  difference  in  rates 
which  exaggerates  acttal  differences  in  traffic  conditions,  on  the 
one  hand,  or  one  which  fails  fully  to  recognize  them,  on  the  other 
hand,  amounts  to  an  unjust  discrimination.  It  is  equally  true 
that  the  absence  of  a  dift'erence  in  rates  where  a  substantial  dif- 
ference in  conditions  warrants  and  demands  a  discrimination  in 
rate-making  must  amount  to  real  injustice  and  constitute  a  real 
as  well  as  a  technical  unjust  discrimination. 

Unjust  discriminations  afford  undue  and  unreasonable  advan- 
tages to  particular  persons,  places  or  kinds  of  traffic  and  sub- 
ject other  persons,  places  and  kinds  of  traffic  to  undue  prejudice 
and  disadvantage.    That  some  should  enjoy  improper  advantages 


» 


s^' 


1 


1 20 


Yale  Review, 


[Aug. 


and  others  suffer  undue  prejudice  and  loss  is  an  offense  against 
the  moral  sentiment  of  mankind,  an  impediment  to  industrial 
progress  and  a  reproach  to  the  nation  or  community  which  fails 
seriously  to  seek  and  energetically  to  apply  an  effective  remedy. 

Any  secret  device  by  which  a  portion  of  the  charge  for  a 
particular  railway  service,  or  the  amount  legally  required  to  be 
paid  for  such  a  service,  is  remitted  to  the  person  for  whom  the 
service  is  performed,  constitutes  a  rebate.  Such  remission  may 
be  accomplished  by  the  collection  of  less  than  the  legal  charge, 
by  the  repayment  of  a  portion  of  the  amount  collected,  by  the 
performance  of  some  additional  service  not  properly  to  be 
included  in  the  total  charge,  by  underbilling,  by  excessive  mileage 
payments  for  cars  owned  by  the  shipper,  by  the  allowance  of 
unduly  large  proportions  of  the  through  rate  for  terminal  facili- 
ties supplied  by  the  shippers  and  by  countless  other  devices  of 
varying  degrees  of  subtlety.  American  experience  shows  that 
as  the  law  has  made  the  simpler  devices  difficult  and  dangerous, 
the  ingenuity  of  those  desiring  to  receive  or  willing  to  pay 
rebates  has  caused  increasing  resort  to  the  more  subtle  forms. 

There  has  never  been  a  year,  since  the  American  railway  sys- 
tem passed  from  its  earliest  and  crudest  stages,  during  which 
rebates  in  one  form  or  another  have  not  been  an  important  feature 
of  railway  practice.  During  the  period  just  before  the  enactment 
of  the  Interstate  Commerce  law  they  were  the  rule  rather  than 
the  exception.^  Railways  were  then  under  no  legal  obligation, 
so  far  at  least  as  interstate  business  was  concerned,  to  observe 
the  schedules  of  rates  which  they  generally  found  it  convenient 
to  publish,  and  although  they  were  bound  by  the  common  law 
requirement  that  their  charges  should  be  reasonable  and  just, 
it  was  commonly  believed  that  while  performing  one  service  for 
a  rate  in  itself  reasonable  they  might  perform  another  of  sub- 
stantially similar  character  for  a  lower  rate.  Under  these  cir- 
cumstances there  was  freedom  of  contract  between  shipper  and 
carrier.  The  schedules,  which  were  given  more  or  less  pub- 
licly by  the  soliciting  agents  and  other  railway  officers,  were 
the  basis  of  negotiations  rather  than  recognized  standards  of 
charges.    The  shipper  who  desired  services  which  might  be  per- 

'  First  Annual  (18S7)  Report  of  the  Interstate  Commerce  Commission,  pp.  5-7. 


% 


\ 


\ 


1907] 


Rebates, 


121 


formed  by  two  or  more  railways  "shopped"  freely  among  them, 
and  his  offerings  of  traffic  constituted  a  prize  for  which  the 
officers  of  the  rival  lines  competed  with  a  degree  of  intensity 
directly  proportioned  to  their  volume  or  value.  Competition  for 
the  traffic  of  points  located  on  but  one  railway  may  have  been 
less  obvious  and  direct  but  it  was  not  much  less  actual  nor 
was  it  conducted  in  any  very  different  manner.  The  individual, 
firm  or  corporation,  which  proposed  the  erection  of  a  new  pro- 
ductive establishment  made  its  purposes  known  to  the  officers 
of  all  the  railways  along  which  eligible  locations  were  to  be 
found  and  the  final  choice  of  situation  was  governed  very  largely 
by  the  concessions  in  freight  charges  which  could  be  contracted 
for  in  advance.  Similarly  those  establishments  whose  owners 
desired  new  outlets  for  their  products,  or  who  desired  to  sell 
more  goods  in  markets  formerly  open  to  them,  found  ready 
assistance  from  rate-making  officers;  and  this  aid  frequently 
took  the  form,  using  the  word  in  the  broad  sense  hereinbefore 
indicated,  of  a  rebate.  Even  the  development  of  agrarian  com- 
munities was  strongly  influenced  in  the  same  manner.  Railways 
competed,  as  they  still  vigorously  compete,  to  induce  prospective 
settlers  who  proposed  to  engage  in  farming  to  locate  along  their 
lines,  and  the  principal  terms  of  the  competition,  then  as  now, 
were  the  rates  on  farm  products.  Then,  however,  it  was  easy 
to  carry  out  the  competition  by  offering  rebates  to  grain  buyers, 
and  the  device  had  the  advantage  that  it  might  for  a  time  con- 
ceal from  actual  and  potential  rivals  the  degree  of  rivalry  which 
they  would  have  to  meet  in  order  to  be  successful. 

In  short,  rebates,  prior  to  1887,  were  the  handy  weapon  of 
interstate  railway  competition.  They  were  checked  only  by  the 
consciousness  of  railway  officers  that  they  fostered  an  unbridled 
competition  that  often  resulted  in  doing  business  at  a  loss,  a 
consciousness  which,  when  brought  sharply  home  to  some  officers 
and  owners  by  seriously  depleted  revenues  and  even  by  bank- 
ruptcies, resulted  in  agreements  to  maintain  equal  rates  via  rival 
routes,  and,  in  some  cases,  to  divide  competitive  traffic,  or  all  or 
a  part  of  the  earnings  therefrom,  in  fixed  proportions.  If 
beyond  this  consciousness  and  the  arrangements  which  resulted 
from  it  there  was  any  check  upon  rebating,  it  resulted  from  a 


I 


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I 


I 


122 


Va/e  Review, 


[Aug. 


growing  public  opinion  which  condemned,  as  immoral,  prac- 
tices that,  without  entire  accuracy,  were  commonly  assumed 
always  to  be  means  by  which  unjust  discrimination  was  effected. 

Whatever  may  be  the  faults,  and  it  is  not  suggested  that  they 
are  not  grievous,  of  such  a  system  of  rate-making  as  that  which 
has  been  outlined,  it  possesses  the  great  merit  of  elasticity.  No 
one  will  adequately  apprehend  the  conditions  which  existed  prior 
to  the  enactment  of  the  Interstate  Commerce  law  if  he  fails  to 
perceive  the  readiness  with  which  it  permitted  the  adaptation  of 
the  charges  for  railway  services  to  the  successive  states  of  an 
intensely  dynamic  and  rapidly  changing  industrial  organization. 
The  unjust  personal  discriminations  which  were  equally  possible 
and  perhaps  even  more  probable  under  unrestricted  rebating 
doubtless  produced  irreparable  injuries  to  some,  but  it  may  still 
be  questioned  whether,  during  the  earlier  portion  of  the  period 
characterized  by  the  practice  which  is  now  so  strongly  con- 
demned, its  existence  was  not,  upon  the  whole,  favorable  to  the 
industrial  upbuilding  of  the  nation. 

Since  April  4,  1887,  the  date  on  which  the  Interstate  Com- 
merce law  became  effective,  the  publication  of  rate  schedules  has 
been  required  by  law  and  any  deviation  from  the  charges  thus 
indicated  has  been  an  offense  against  the  laws  of  the  United 
States  punishable  as  a  misdemeanor.  The  section  in  the  law,  as 
originally  adopted,  requiring  the  publication  of  the  schedules 
contains  the  following: 

"And  when  any  such  common  carrier  shall  have  established 
and  published  its  rates,  fares  and  charges  in  compliance  with  the 
provisions  of  this  section,  it  shall  be  unlawful  for  such  common 
carrier  to  charge,  demand,  collect,  or  receive  from  any  person  or 
persons  a  greater  or  less  compensation  for  the  transportation  of 
passengers  or  property,  or  for  any  services  in  connection  there- 
with, than  is  specified  in  such  published  schedules  of  rates,  fares 
and  charges  as  may  at  that  time  be  in  force." 

The  second  section  of  the  original  act  reads  as  follows : 

'That  if  any  common  carrier  subject  to  the  provisions  of  this 
act  shall,  directly  or  indirectly,  by  any  special  rate,  rebate,  draw- 
back or  other  device,  charge,  demand,  collect  or  receive  from 
any  person  or  persons  a  greater  or  less  compensation  for  any 


1907] 


Rebates, 


123 


service  rendered,  or  to  be  rendered,  in  the  transportation  of  pas- 
sengers or  property,  subject  to  the  provisions  of  this  act,  than 
it  charges,  demands,  collects,  or  receives  from  any  other  person 
or  persons  for  doing  for  him  or  them  a  like  and  contemporaneous 
service  in  the  transportation  of  a  like  kind  of  traffic  under  sub- 
stantially similar  circumstances  and  conditions,  such  common  car- 
riers shall  be  deemed  guilty  of  unjust  discrimination,  which  is 
hereby  prohibited  and  declared  to  be  unlawful." 

It  may  well  be  doubted  whether  the  section  just  quoted  pro- 
hibits anything  possible  to  general  railway  practice  which  is  not 
forbidden  by  the  broader  language  quoted  from  the  sixth  section, 
and  this  doubt  is  accentuated  when  the  necessity  of  formu- 
lating the  published  rate  schedules  in  accordance  with  the  require- 
ments of  the  third  section  (which  prohibits  undue  preferences) 
is  taken  into  account.  Special  rates  which  would  cover  the 
performance  of  a  service  for  one  individual  or  group  of  individ- 
uals for  a  smaller  payment  than  was  exacted  from  some  other 
person  or  group  "for  a  like  and  contemporaneous  service  in  the 
transportation  of  a  like  kind  of  traffic  under  substantially  similar 
circumstances  and  conditions"  certainly  could  not  be  provided 
in  published  rate  schedules  unless  these  afforded  an  obvious 
"undue  or  unreasonable  preference  or  advantage"^  to  some  "per- 
son, company,  firm,  corporation  or  locality,"^  or  some  "particular 
description  of  traffic."^  The  only  way  in  which  such  special 
rates  could  be  granted,  therefore,  would  be  by  such  departures 
from  the  published  rates  as  those  broadly  prohibited  by  the  sixth 
section.  What  is  true  of  any  "special  rate"  is  more  apparently 
true  of  any  "rebate,  drawback,  or  other  device"  intended  to 
operate  so  as  to  make  the  charge  to  one  railway  patron  lower 
than  that  exacted  for  like  and  contemporaneous  service  per- 
formed for  some  other  patron.  The  strict  observance  of  legally 
complete  and  properly  published  rate  schedules  would  prevent 
violation  of  the  law  by  any  of  the  means  enumerated  or  implied 
in  the  second  section. 

The  first  five  sections  of  the  Interstate  Commerce  law  and 
that  portion  of  the  sixth  section  which  has  been  quoted  remain 
to-day  in  precisely  the  form  of  their  original  enactment.     Some 

^  These  terms  are  used  in  the  third  section. 


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additional  meaning  has,  perhaps,  been  given  to  the  specific  pro- 
hibition of  the  second  section  by  changes  in  the  penalties  pro- 
vided by  the  law.  Originally  the  statute  provided  no  penalties 
except  those  directed  against  railway  officers,  employees  or 
agents  and  no  distinction  was  made  between  different  forms  of 
violations.  Any  willful  violation  was,  from  April  5,  1887,  to 
March  i,  1889,  inclusive,  a  misdemeanor  punishable  by  a  fine 
of  not  to  exceed  five  thousand  dollars.  In  its  second  annual 
report  the  Interstate  Commerce  Commission  urged  upon  Con- 
gress the  desirability  of  making  the  penalties  of  the  Act  applic- 
able to  shippers  guilty  of  participation  in  its  violation,  and  at 
the  same  time  suggestions  were  made,  in  which  the  Commission 
was  understood  to  concur,  that  imprisonment  constitutes  the  only 
penalty  sufficiently  dreaded  to  check  adequately  certain  classes 
of  offenses  against  the  statute.  These  views  apparently  impressed 
themselves  upon  Congress,  for  an  amendment  to  the  tenth 
section  of  the  law,  which  took  effect  on  March  2,  1889,  brought 
shippers  within  the  scope  of  its  penalties ;  and  "imprisonment  in 
the  penitentiary  for  a  term  of  not  exceeding  two  years"  was,  in 
the  case  of  violations  which  amount  to  "an  unlawful  discrimina- 
tion in  rates,  fares  or  charges,"  made  a  punishment  available  in 
the  discretion  of  the  court  as  an  alternative  or  supplement  to  the 
fine  theretofore  provided  for.  The  same  amendment  declared 
that  either  or  both  penalties  might  be  incurred  by  any  one  who : — 

" by  means  of  false  billing,  false  classification, 

false  weighing,  or  false  report  of  weight,  or  by  any  other  device 
or  means,  shall  knowingly  and  willfully  assist,  or  shall  willingly 
suft'er  or  permit,  any  person  or  persons  to  obtain  transportation 
for  property  at  less  than  the  regular  rates  then  established  and 
in  force " 

Furthermore,  the  provisions  containing  this  declaration  were 
made  to  include  shippers  and  their  agents  as  well  as  the  officers 
and  agents  of  the  carrying  company.  Singularly  enough  a  most 
natural  consequence  of  the  expansion  of  the  penal  provisions  of 
the  statute  so  as  to  include  both  parties  to  rebate  payments  does 
not  appear  to  have  been  at  all  anticipated.  Rebate  contracts  are 
not  usually  negotiated  before  large  audiences  nor  are  rebate 
payments  commonly  made  upon  street  corners.     An  essential 


1907] 


Rebates, 


125 


element  in  these  practices,  quite  aside  from  their  legality,  is  the 
secrecy  with  which  they  are  conducted.  Now  it  is  obvious  that, 
under  a  law  the  penalties  of  which  include  the  recipient  of  a 
rebate  and  his  agents  as  well  as  the  officers  and  agents  of  the 
carrier,  knowledge  of  the  acts  constituting  the  misdemeanor  may 
often  be  confined  to  those  liable  to  prosecution  and  punishment 
therefor.  Under  such  circumstances  it  might  easily  happen  that 
in  an  important  case  every  available  witness  would  be  in  a  posi- 
tion to  plead  the  protection  of  Article  V  of  the  Amendments  to 
the  Constitution  of  the  United  States  that  "no  person  .  .  . 
shall  be  compelled  in  any  criminal  case  to  be  a  witness  against 
himself,"  and  to  decline  to  testify.  If  this  possibility  was  not 
foreseen  its  existence  was  speedily  brought  to  the  attention  of 
those  charged  with  the  duty  of  enforcing  the  statute. 

The  amendment  extending  to  shippers  the  penalties  for  rebat- 
ing received  Presidential  approval  on  March  2,  1889,  and 
on  November  21,  1890,  one  Charles  Counselman,  an  extensive 
shipper  of  grain,  being  before  the  Federal  grand  jury  for  the 
Northern  District  of  Illinois,  which  was  then  engaged  in  an 
inquiry  concerning  alleged  violations  of  the  Interstate  Commerce 
law,  the  following  question  and  answer,  among  others,  were 
recorded : — 

"Question.  'Have  you  during  the  past  year,  Mr.  Counselman, 
obtained  a  rate  for  the  transportation  of  your  grain  on  any  of 
the  railroads  coming  to  Chicago  from  points  outside  of  this  State 
less  than  the  tariff  or  open  rate?' 

"Answer.  That  I  decline  to  answer,  Mr.  Milchrist,  on  the 
ground  that  it  might  tend  to  criminate  me.'  " — 3  I»ter.  Com. 
Rep.,  327. 

This  refusal  to  testify  being  promptly  reported  to  the  district 
judge,  an  order  requiring  the  witness  to  answer  the  question 
quoted  and  others  of  similar  import  was  entered.  The  witness, 
however,  persisted  in  his  refusal,  and  in  consequence  of  this 
refusal  was  ordered  to  pay  a  fine  of  $500  and  to  remain  in  the 
custody  of  the  United  States  marshal  until  he  should  answer 
the  questions  and  all  questions  of  similar  character.  Judge 
Gresham,  then  sitting  as  circuit  judge,  refused,  on  this  state  of 


il 


m^mmsmmm.- 


126 


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[Aug. 


1907] 


Rebates, 


127 


\ 


facts,  to  grant  a  writ  of  habeas  corpus,^  holding  that  Section  860 
of  the  Revised  Statutes  affords  immunity  equal  to  that  ot  the 
Fifth  Amendment.  This  section  of  the  Revised  Statutes  is  as 
follows : 

"No  pleading  of  a  party,  nor  any  discovery  or  evidence 
obtained  from  a  party  or  witness  by  means  of  a  judicial  pro- 
ceed ngi"  this  or  any  foreign  country,  shall  be  g-enm  evidence, 
or  in  Iny  manner  used  against  him  or  his  property  or  es  ate. 
in  anv  court  of  the  United  States  in  any  criminal  proceedings 
or  ?or  the  enforcement  of  any  penalty  or  forfeiture :  FroW.^ 
That  this  section  shall  not  exempt  any  P^-'ty  0;  -f-f  Jr°m 
prosecution  and  punishment  for  perjury  committed  in  discover 
ing  or  testifying  as  aforesaid." 

The  dismissal  of  the  writ  of  habeas  corpus  by  Judge  Gresham 
was  appealed  from  and  on  January  n,  1892,  the  Supreme  Court 
of  the  United  States  reversed  the  decision  of  the  Circuit  Court 
and  remanded  the  case  to  that  court  with  a  direction  to  dis- 
charge the  appellant  from  custody.  The  principle  of  law  applied 
in  the  opinion  of  the  Supreme  Court  is  indicated  by  the  following 
quotations : — 

"It  remains  to  consider  whether  Section  860  of  the  Revised. 
Statutes  removes  the  protection  of  the  Constitutional  privilege 
of  Counselman.    That  section  .     .     .     protected  him  against  the 
use  of  his  testimony  against  him  or  his  property  m  any  prosecu- 
don  against  him  or  hi!  property,  in  any  criminal  proceeding,  m 
a  court  of  the  United  States.     But  it  had  only  that  effect.     It 
cotdd  not,  and  would  not,  prevent  the  use  of  his  testimony  to 
sea  ch  ou  other  testimony  to  be  used  against  him  or  his  property, 
^a  criminal  proceeding  in  such  court.    It  could  not  prevent  th^ 
obtaining  and  the  use  of  witnesses  and  evidence  which  should 
r  attHbutable  directly  to  the  testimony  he  might  give  under 
impulsion,  and  on  which  he  might  be  convicted,  when  other- 
wTe  and  i    he  had  refused  to  answer  he  could  not  possibly  have 
been  convicted.     .     .     the  protection  of  Section  860  is  not  coex- 
tensive with  the  constitutional  provision^    Legislation  cannot 
detract  from  the  privilege  afforded  by  the  Constitution.  -Coun- 
selman V.  Hitchcock,  142  U.  S.,  547- 

Following  the  foregoing,  the  opinion  of  the   Supreme  Court 
proceeded  to  discuss  at  some  length  the  effect  of  the  statutes  of 

1  3  Inter.  Com.  Rep.,  327.     44  Fed.  Rep.,  268. 


certain  States,  the  legislatures  of  which  had  attempted  to  secure 
testimony  from  persons  who  might  otherwise  plead  the  protec- 
tion of  constitutional  exemptions  similar  to  that  of  the  Fifth 
Amendment  to  the  Federal  constitution,  by  forbidding  future 
criminal  prosecutions  against  such  witnesses.  After  citing  a 
number  of  adjudicated  cases  the  court  said  \— 

"We  are  clearly  of  opinion  that  no  statute  which  leaves  the 
party  or  witness  subject  to  prosecution  after  he  answers  the 
criminating  questions  put  to  him,  can  have  the  effect  of  supple- 
menting the  privilege  conferred  by  the  Constitution  of  the  United 
States.  .  .  In  view  of  the  constitutional  provision  a  statu- 
tory enactment  to  be  valid,  must  afford  absolute  immunity  for 
the  oft'ense  to  which  the  question  relates."— Counselman  v. 
Hitchcock,  142  U.  S.,  547- 

This  decision  and  its  consequence  were  first  explained  to  Con- 
gress in  the  Annual  Report  which  the  Interstate  Commerce  Com- 
mission submitted  on  December  i,  1892,  and  the  prompt  action  of 
the  national  legislature  illustrates  its  customary  readiness  to 
adopt  the  reasonable  recommendations  of  the  Commission.  The 
change  in  the  statutory  protection  afforded  this  class  of  wit- 
nesses, plainly  suggested  by  the  Supreme  Court  and  urged  by 
the  Commission,  was  enacted  and  received  Presidential  sanction 
just  two  months  and  ten  days  after  the  date  of  the  Commission's 
report.  The  following  provision  of  law  was  approved  on  Feb- 
ruary II,  1893: — 

"That  no  person  shall  be  excused  from  attending  and  testifying 
or  from  producing  books,  papers,  tariffs,  contracts,  agree- 
ments and  documents  before  the  Interstate  Commerce  Commis- 
sion, or  in  obedience  to  the  subpoena  of  the  Commission,  whether 
such  subpoena  be  signed  or  issued  by  one  or  more  Commissioners, 
or  in  any  cause  or  proceeding,  criminal  or  otherwise,  based  upon 
or  growing  out  of  any  alleged  violation  of  the  Act  of  Congress, 
entitled— "An  act  to  regulate  commerce,"  approved  February 
fourth,  eighteen  hundred  and  eighty-seven,  or  of  any  amend- 
ment thereof,  on  the  ground  or  for  the  reason  that  the  testimony 
or  evidence,  documentary  or  otherwise,  required  of  him,  may  tend 
to  criminate  him  or  subject  him  to  a  penalty  or  forfeiture. 

But  no  person  shall  be  prosecuted  or  subjected  to  any  penalty  or 
forfeiture  for  or  on  account  of  any  transaction,  matter  or  thing, 
concerning  which  he  may  testify,  or  produce  evidence  docu- 


I! 


>>»'»>m^!fmmf-3fi>^'P^(HmKf^ ' 


--mmm^$^. 


-m^WfimmSi^^w^i 


I 


128 


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[Aug. 


\ 


it; 


(|! 


mentary  or  otherwise,  before  said  Commission,  or  in  obedience  to 
its  subpoena  or  the  subpoena  of  either  of  them,  or  in  any  such 
case  or  proceeding." 

Almost  precisely  a  year  after  the  enactment  of  the  foregoing, 
on  February  i6,  1894,  to  be  exact,  the  Federal  grand  jurors 
for  the  Northern  District  of  Illinois,  being  engaged  in  an  inquiry 
concerning  alleged  violations  of  the  Interstate  Commerce  law, 
two  witnesses  declined  to  respond  to  certain  inquiries  upon  the 
ground  that  their  answers  would  tend  to  criminate  them.  The 
validity  of  the  law  of  February  11,  1893,  was  thus  brought  before 
Judge  Grosscup,  who  was  then  sitting  as  district  judge,  and  on 
February  26,  1894,  he  declined  to  punish  them  for  their  refusals 
to  testify.  Although  the  Supreme  Court  subsequently  took  an 
opposite  view  of  the  questions  involved,  the  opinion  of  this  great 
publicist  and  justly  distinguished  jurist  merits  quotation  on 
account  of  its  characteristic  breadth  of  view : — 

*The  case  at  bar,  like  those  cited,  inspires  no  wish  in  the  court 
to  protect  the  witnesses.  The  Interstate  Commerce  act  is  a  law  of 
the  land,  and  the  witnesses  ask  for  the  protection  of  the  Amend- 
ment  under  circumstances  which  indicate  that,  having  violated 
it  before,  they  have  no  intention  to  cease  violating  it  now.  It  is 
the  contest  of  the  people  who  disbelieve  in  the  expediency  of  the 
law  against  the  attempt  to  enforce  it.  The  protection  is  asked,  not 
so  much  to  keep  inviolate  the  secrets  of  the  human  breast,  as  to 
have  immunity  in  further  violating  a  law  of  the  land.  Judged 
by  this  specific  instance,  the  Fifth  Amendment,  if  construed 
broadly  enough  to  afford  the  witnesses  immunity  against  testi- 
fying, is  an  obstruction  in  the  path  of  the  administration  of 
law.  But  the  Fifth  Amendment  must  not  be  judged  by  a  single 
specific  instance.  It  was  placed  in  the  organic  law  of  the  land 
for  a  purpose  and  that  purpose,  when  ascertained,  must  be 
enforced,  howsoever  it  may  effect  sporadic  cases,  or  even  the 

great  body  of  cases,  that  may  come  before  the  court 

The  privilege  which  the  f  ramers  of  the  Amendment  secured  was 
silence  against  the  accusation  of  the  Federal  government, — 
silence  against  the  right  of  the  Federal  government  to  seek  out 
data  for  an  accusation.  This  privilege  of  silence  was,  as  they 
believe,  and  as  events  then  looked,  in  the  interest  of  progress 
and  personal  happiness,  as  against  the  narrow  views  of  adven- 
titious power.  Did  they  originate  such  a  privilege  simply  to 
safeguard  themselves  against  the  law-inflicted  penalties  and  for- 


^ 


i^^^m^w^. 


ri^rp^W^^^^'^^p'^^^^^i^^w 


dJ 


1907] 


Rebates, 


129 


I 


feitures?  Did  they  take  no  thought  of  the  pains  of  practical 
outlawry?  The  stated  penalties  and  forfeitures  of  the  law 
might  be  set  aside;  but  was  there  no  pain  in  disfavor  and 
odium  among  neighbors,  in  excommunication  from  church  or 
societies  that  might  be  governed  by  the  prevailing  views,  in  the 
private  liabilities  that  the  law  might  authorize,  or  in  the  unfath- 
omable disgrace,  not  susceptible  of  formulation  in  language, 
which  a  known  violation  of  law  brings  upon  the  offender.  .  .  . 
I  cannot  think  so. 

"Happily,  the  day  when  this  immunity  is  needed  seems  to  be 
over.  It  is  difficult  for  us,  who  live  in  a  time  when  there  are 
few,  if  any,  definitions  of  crime  that  do  not  meet  with  the 
approval  of  universal  intelligence  and  conscience,  to  appreciate 
these  conceptions  of  our  fathers  .  .  .  when  we  see  the  shield 
held  before  the  briber,  the  liquor  seller,  the  usury  taker,  the 
duelist,  and  the  other  violators  of  accepted  law,  we  are  moved 
to  break  or  cast  it  aside,  unmindful  of  the  splendid  purpose  that 
first  threw  it  forward.  But  whatever  its  disadvantages  now,  it 
i.5  a  fixed  privilege,  until  taken  down  by  the  same  power  that 
extended  it.  It  is  not  certain,  either,  that  it  may  not  yet  serve 
some  useful  purpose.  The  oppression  of  crowns  and  principali- 
ties is  unquestionably  over,  but  the  more  frightful  oppression 
of  selfish,  ruthless  and  merciless  majorities  may  yet  constitute 
one  of  the  chapters  of  future  history.  In  my  opinion,  the  privi- 
lege of  silence,  against  a  criminal  accusation,  guaranteed  by  the 
Fifth  Amendment,  was  meant  to  extend  to  all  the  consequences 
of  disclosure."— U.  S.  v.  James,  5  Inter.  Com.  Rep.,  584-588. 
60  Fed.  Rep.  257. 

No  appeal  could  be  taken  by  the  government  from  Judge 
Grosscup's  decision  and  although  the  Interstate  Commerce  Com- 
mission declared,  in  reference  to  the  Counselman  and  James 
cases,  that: — 

"It  will  thus  appear  that  for  more  than  five  years,  last  past, 
Jt  has  been  impracticable  to  obtain  testimony  on  which  to  enforce 
the  penal  provisions  of  the  act,  the  statute  having  received  a 
construction  which  made  it  impossible  to  obtain  evidence  of  guilt, 
though  a  very  few  convictions  of  no  great  importance  have  been 
secured  upon  testimony  casual  and  accidental." — Ninth  Annual 
Report  (1895),  P-  9- 

it  appears  that  it  was  not  until  May  6,  1895,  ^01*^  than  a  year 

after  it  was  decided,  that  a  case  of  similar  character  could  be 
9 


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1 


% 

'% 
•? 


\  \ 


I  Mill 


brought  in  another  jurisdiction.  On  the  date  last  mentioned, 
however,  Theodore  F.  Brown,  a  railway  officer,  declined,  while 
before  the  Federal  grand  jury  for  the  Western  District  of  Penn- 
sylvania, to  give  testimony  which  he  declared  "would  tend  to 
accuse  and  criminate"  himself.  This  refusal  being  reported  to 
the  District  Court,  a  rule  requiring  him  to  answer  was  issued 
and  as  he  persisted  in  his  refusal  he  was  adjudged  guilty  of 
contempt,  sentenced  to  pay  a  fine  and  ordered  to  remain  in  the 
custody  of  the  United  States  marshal  until  the  fine  should  be 
paid.  A  petition  for  a  writ  of  habeas  corpus  was  denied  by  the 
Circuit  Court  (5  Inter.  Com.  Rep.,  300)  and  on  appeal  to  the 
Supreme  Court  the  judgment  of  the  lower  court  was  affirmed, 
Justices  Field  and  Shiras  dissenting.  The  opinion  of  the 
majority  of  the  Supreme  Court  was  prepared  by  Mr.  Justice 
Brown  and  includes  the  following : 

"The    act   of    Congress    in   question    securing   to   witnesses 
immunity    from    prosecution    is    virtually    an    act    of    general 

amnesty, It  is  entirely  true  that  the  statute 

does  not  purport,  nor  is  it  possible  for  any  statute,  to  shield  the 
witness  from  the  personal  disgrace  or  opprobrium  attaching  to 
the  exposure  of  his  crime;   but    .     .     .     if  the  proposed  testi- 
mony is  material  to  the  issue  on  trial,  the  fact  that  the  testimony 
may  tend  to  degrade  the  witness  in  public  estimation  does  not 
exempt  him  from  the  duty  of  disclosure.     A  person  who  com- 
mits a  criminal  act  is  bound  to  contemplate  the  consequences  of 
exposure  to  his  good  name  and  reputation,  and  ought  not  to  call 
upon  the  courts  to  protect  that  which  he  has  himself  esteemed 
to  be  of  such  little  value.     .     .     The  design  of  the  constitutional 
privilege  is  not  to  aid  the  witness  in  vindicating  his  character, 
but  to  protect  him  against  being  compelled  to  furnish  evidence 
to  convict  him  of  a  criminal  charge.    If  he  secure  legal  immunity 
from  prosecution,  the  possible  impairment  of  his  good  name  Is 
a  penalty  which  it  is  reasonable  he  should  be  compelled  to  pay 
for  the  common  good.     If  it  be  once  conceded  that  the  fact  that 
his  testimony  may  tend  to  bring  the  witness  into  disrepute, 
though  not  to  incriminate  him,  does  not  entitle  him  to  the  privi- 
lege of  silence,  it  necessarily  follows  that  if  it  also  tends  to 
incriminate,  but  at  the  same  time  operates  as  a  pardon  for  the 
offense,  the  fact  that  the  disgrace  remains  no  more  entitles  him 
to  immunity  in  this  case  than  in  the  other.     .     .     .     While  the 
constitutional  provision  in  question  is  justly  regarded  as  one 


of  the  most  valuable  prerogatives  of  the  citizen,  its  object  is  fully 
accomplished  by  the  statutory  immunity,  and  we  are  therefore 
of  opinion  that  the  witness  was  compellable  to  answer,  .  .  ." 
— Brown  v.  Walker,  5  Inter.  Com.  Rep.,  381,  390.     161  U.  S., 

591- 

The  decision  of  the  Supreme  Court  in  the  Brown  case  was 
rendered  on  March  23,  1896,  and  was  at  once  heralded  as  clear- 
ing the  way  for  the  complete  eradication  of  rebates.  The  Inter- 
state Commerce  Commission  in  its  Tenth  Annual  Report 
(1895,  P-  27)  strongly  indicated  its  belief  that  thereafter  there 
would  be  little  difficulty  in  detecting  and  punishing  deviations 
from  the  published  schedules  of  rates. 

The  law  of  February  11,  1893,  which  has  just  been  considered, 
had  for  its  specific  object  the  removal  of  opportunity  to  escape 
giving  testimony  concerning  violations  of  the  Interstate  Com- 
merce law  by  claiming  the  Constitutional  protection  against 
compulsory  self-incrimination.  The  James  and  Brown  cases 
relate  to  the  production  of  testimony  before  grand  juries  and  so 
did  the  Counselman  case,  based  upon  the  earlier  statutory  pro- 
vision, which  preceded  them.  While  this  litigation  was  in  pro- 
gress an  entirely  different  question  arose  through  litigation 
which  challenged  the  validity  of  the  statutory  means  provided 
for  requiring  any  testimony  whatever  in  proceedings  before  the 
Interstate  Commerce  Commission. 

The  twelfth  section  of  the  Interstate  Commerce  law  author- 
izes the  Commission  to  issue  subpoenas  and  subpoenas  duces 
tecum  and  proceeds  as  follows : — 

"And  in  case  of  disobedience  to  a  subpoena  the  Commission, 
or  any  party  to  a  proceeding  before  the  Commission,  may  invoke 
the  aid  of  any  court  of  the  United  States  in  requiring  the  atten- 
dance and  testimony  of  witnesses  and  the  production  of  books, 
papers,  and  documents  under  the  provisions  of  this  section. 
And  any  of  the  circuit  courts  of  the  United  States  within  the 
jurisdiction  of  which  such  inquiry  is  carried  on  may,  in  case  of 
contumacy  or  refusal  to  obey  a  subpoena  issued  to  any  common 
carrier  subject  to  the  provisions  of  this  act,  or  other  person, 
issue  an  order  requiring  such  common  carrier  or  other  person  to 
appear  before  said  Commission  (and  produce  books  and  papers 
if  so  ordered)  and  give  evidence  touching  the  matter  in  question; 


'M'^^^**^0^^^:'^^^'mis^mm^m^w^^^^^Kmh' 


I* 


i 


1 


I 


1 


Hi!'! 

Hiili 


!ll^ 


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and  any  failure  to  obey  such  order  of  the  court  may  be  punished 
by  such  court  as  a  contempt  thereof."^ 

On  June  18,  1892,  the  Commission  made  an  order  requirmg 
certain  railway  companies  to  appear  before  it  on  July  13,  follow- 
ing, at  Chicago,  *'to  answer  an  informal  complamt,  made  by 
unknown  persons."^ 

At  the  hearing  which  followed,  some  of  the  witnesses,  acting 
upon  advice  of  counsel,  refused  to  produce  the  books  of  their 
companies  or  to  answer  certain  questions.  The  Commission  then 
applied  to  the  United  States  Circuit  Court  for  the  Northern 
District  of  Illinois,  in  accordance  with  the  twelfth  section,  for 
an  order  compelling  the  production  of  the  books  and  requiring 
answers  to  the  inquiries  propounded.  The  decision  dismissing 
this  application  was  rendered  by  the  late  Judge  Walter  Q. 
Gresham  and  is  epitomized  in  the  following  quotations  :— 

"The  application  of  an  administrative  body  (and  we  are  now 
considering  such  an  application)  to  a  judicial  tribunal  for  the 
exercise  of  its  functions  in  aid  of  the  execution  of  non-judicial 
duties  does  not  make  a  'case'  or  'controversy'  upon  which  the 
judicial  power  can  be  brought  to  bear.  .  .  Congress  cannot 
make  the  judicial  department  the  mere  adjunct  or  mstrument 
of  either  of  the  other  departments  of  government.  .  ^  .  .  . 
Undoubtedly  Congress  may  confer  upon  a  non-judicial  body 
authority  to  obtain  information  necessary  for  legitimate  govern- 
mental purposes,  and  make  refusal  to  appear  and  testify  before 
i^  touching  matters  pertinent  to  any  authorized  inquiry  an 
offense  punishable  by  the  courts,  .  .  .  A  prosecution  or  an 
action  for  violation  of  such  a  statute  would  clearly  be  an  original 
suit  or  controversy  between  parties  within  the  meaning  of  the 
Constitution,  and  not  a  mere  application,  like  the  present  one,  for 
the  exercise  of  the  judicial  power  in  aid  of  a  non-judicial  body. 
So  much  of  Section  Twelve  as  authorizes  or  requires  the  courts 
to  use  their  process  in  aid  of  inquiries  before  the  Interstate  Com- 
merce Commission  is  unconstitutional  and  void."  Re  application 
of  the  Interstate  Commerce  Commission  for  an  order  upon  W.  G. 
Brimson,  et  al.,  4  Inter.  Com.  Rep.,  317-318- 

'This  portion  of  Section  Twelve  is  quoted  as  it  has  stood  since  March  2,  1889. 
The  first  sentence  read  diflferently  in  the  original  enactment,  but  it  is  not  clear 
that  its  meaning  was  changed  by  the  amendment. 

2  Statement  of  the  case  by  the  late  Judge  Walter  Q.  Gresham.     4  Inter.  Com. 

Rep.,  316. 


1907] 


Rebates, 


133 


The  Commission  appealed  to  the  Supreme  Court  of  the  United 
States  and  succeeded  in  obtaining  a  reversal  of  the  opinion  of 
Judge  Gresham.i  This  section  of  the  Supreme  Court  had  the 
assent  of  but  a  bare  majority,  as  Justices  Brewer  and  Jackson 
with  Chief  Justice  Fuller  joined  in  a  dissenting  opinion  and 
Justice  Field  did  not  sit  in  the  case  and  took  no  part  in  its 
determination.  The  opinion,  by  Mr.  Justice  Harlan,  handed 
down  on  May  26,  1894,  declares  that,  when  the  means  for  com- 
pelling testimony  provided  in  the  twelfth  section  are  invoked, 
distinct  issues,  sufficient  to  make  up  a  "case  or  controversy" 
within  the  meaning  of  the  Constitution,  arise  between  the  United 
States  and  the  recalcitrant  witness.    Continuing,  it  is  declared : — 

"And  those  issues  made  in  the  form  prescribed  by  the  Act  of 
Congress  are  so  presented  that  the  judicial  power  is  capable 
of  acting  on  them.  The  question  so  presented  is  substantially, 
if  not  precisely,  that  which  would  arise  if  the  witness  was  pro- 
ceeded against  by  indictment  under  an  Act  of  Congress  declaring 
it  to  be  an  offense  against  the  United  States  for  any  one  to 
refuse  to  testify  before  the  Commission." — Interstate  Com- 
merce Commission  vs.  Brimson,  4  Inter.  Com.  Rep.,  555.  154 
U.  S.,  447. 

The  final  decisions  in  the  Brown  and  Brimson  cases  were 
unqualifiedly  favorable  to  the  Commission  and  it  was  commonly 
believed  that  they  would  put  an  end  to  rebates  in  all  their  forms. 
Five  pages  of  the  Tenth  Annual  (1896)  Report  of  the  Commis- 
sion are  devoted  to  an  explanation  of  the  decision  in  the  Brown 
case  and  its  hearing  upon  the  problems  of  railway  regulation. 
The  Commission  said,  in  part : — 

"This  decision  seems  to  have  effectually  removed  the  embar- 
rassments hitherto  encountered  in  obtaining  the  testimony  of 
unwilling  witnesses  in  penal  cases;  while  under  it  and  the 
ruling  of  the  Supreme  Court  in  1894  in  the  Brimson  case  little 
difficulty  is  now  experienced  in  securing  the  attendance  and  testi- 
mony of  such  witnesses  in  proceedings  before  the  Commission. 
It  is  worthy  of  mention  that  the  power  and  authority  affirmed  by 
these  decisions  is  so  fully  recognized  that  in  the  course  of  recent 
investigations  by  the  Commission  no  attempt  has  been  discovered 
to  conceal  the  facts  pertinent  to  an  inquiry  or  to  prevent  the  dis- 

154  U.  S.,  447.     For  dissenting  opinion  see  155  U.  S.,  3. 


{ 


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11 


134 


Yale  Review. 


[Aug. 


closure  of   any  desired   information."— Tenth  Annual   Report 
(1896),  p.  27. 

In  spite,  however,  of  the  confidence  expressed  by  the  foregoing 
the  operation  of  the  law  which  .had  been  thus  adjusted  and  read- 
justed to  meet  the  wishes  of  the  Commission  did  not  result  to 
its  satisfaction.  New  recommendations  were  deemed  necessary 
and,  on  January  17,  1902,  the  Commission  said:— 

"The  criminal  provisions  of  the  law  should  be  further  and 
srenerally  amended  with  the  view  of  removing  their  ambiguities 
and  giving  to  those  provisions  the  strength  and  enforceability 
which  come  from  definiteness  of  statement."— Fifteenth  Annual 
Report  (1901),  p.  8. 

The  reasons  urged  in  support  of  this  recommendation  were  sum- 
marized, in  the  same  report,  as  follows : — 

"The  Act  requires  carriers  to  publish  interstate  rates  and 
adhere  to  such  published  tariffs.  But  the  tenth  section,  as  con- 
strued by  the  courts,  does  not  punish,  otherwise  than  by  a  pos- 
sibly nominal  fine,^  a  departure  from  the  published  tariff,  unless 
there  is  actual  discrimination  between  shippers.  To  convict  for 
unjust  discrimination  it  is  necessary  to  show  not  merely  that  the 
railway  company  paid  a  rebate  to  a  particular  shipper,  but  it  must 
also  be  shown  that  it  did  not  pay  the  same  rebate  to  some  other 
shipper  with  respect  to  the  same  kind  of  traffic  moving  at  the 
same  time  under  similar  conditions.  As  a  practical  matter  this 
is  almost  always  impossible.    For  this  reason  prosecutions  other- 

iThe  fine  fixed  by  the  statute,  from  the  enactment  of  the  law  to  the  date  on 
which  the  report  quoted  was  published,  and  thereafter  until  February  19,  1903, 
was  •'  not  to  exceed  $5,000."  Only  a  lack  of  confidence  in  the  Federal  judiciary 
is  expressed  by  the  suggestion  that  such  fines  might,  improperly,  be  made 
-nominal"-  only  a  desire  to  imprison  the  defendants  could  lead  to  a  prefer- 
ence for  proceeding  for  "unjust  discrimination"  instead  of  "  departure  from  the 
published  tariff."  Even  if  imprisonment  were  the  only  penalty  that  could  satisfy 
the  Commission,  it  is  difficult  to  see  why  it  could  not  have  been  brought  about 
by  charging  a  conspiracy  to  violate  a  law  of  the  United  States,  under  Section 
5440  of  the  Revised  Statutes,  which  reads  as  follows  :— 

-  If  two  or  more  persons  conspire  either  to  commit  any  offense  against  the 
United  States  or  to  defraud  the  United  States  in  any  manner  or  for  any  purpose, 
and  one  or  more  of  such  parties  do  any  act  to  effect  the  object  of  the  conspiracy, 
an  the  parties  to  such  conspiracy  shall  be  liable  to  a  penalty  of  not  more  than 
$10,000;  or  to  imprisonment  for  not  more  than  two  years,  or  to  both  fine  and  im- 
prisonment in  the  discretion  of  the  court." 

This  statute  has  continuously  been  in  force  since  long  prior  to  the  passage  of 
the  Interstate  Commerce  law.     As  to  its  application,  see  56  Fed.  Rep.,  21. 


1907] 


Rebates. 


Tt35 


wise  sustainable  can  rarely  be  successful ;  and  this  is  particularly 
the  case  where  there  is  an  extensive  demoralization  of  rates,  and 
consequently  the  greatest  need  for  the  application  of  criminal 
remedies.  Departure  from  the  published  rate  is  the  thing  which 
can  be  shown  and  the  thing  which  should  be  visited  with  fitting 
punishment."^ 

The  Commission  had  previously  declared  itself  in  favor  of 
abolishing  the  imprisonment  penalty,  which  had  been  provided 
on  its  recommendation  in  1889,  as  it  was  believed  that  the  exist- 
ence of  this  penalty  greatly  increased  the  reluctance  to  make  the 
needed  disclosures  on  the  part  of  those  having  knowledge  either 
of  actual  violations  of  the  law  or  that  would  be  likely  to  lead  to 
the  discovery  of  evidence  of  such  violations.^  These  recom- 
mendations were,  like  their  predecessors  herein  discussed,  enacted 
into  law  by  the  Congress.  On  February  19,  1903,  the  President 
of  the  United  States  gave  his  approval  to  the  Act,  commonly 
known  as  the  Elkins  law,  which  made  the  changes  thus  urged. 
As  originally  passed  this  Act  extended  the  penalties  for  violation 
of  the  Interstate  Commerce  law  to  the  carrying  corporations 
concerned  in  them,  made  them  fully  applicable  to  willful  failures 
to  file  and  publish  tariffs  and  to  every  departure  from  the  rates 
named  in  such  tariffs  and  fixed  a  minimum  penalty  of  $1,000 
and  a  maximum  penalty  of  $20,000  for  each  offense.  It  also  did 
away  with  the  imprisonment  penalty  and  made  tariffs  filed  with 
the  Commission  conclusive  evidence  of  the  legal  rates.  The  first 
section  of  the  Elkins  law  was  reenacted,  as  a  part  of  the  recon- 
structed Interstate  Commerce  law  that  was  approved  on  June 
29,  1906,  but  with  some  minor  modifications  and  two  important 
additions.  The  first  of  these  additions  reestablishes  the  alterna- 
tive or  supplemental  penalty  by  "imprisonment  in  the  penitentiary 

*  See  last  preceding  foot-note. 

'^It  has  been  denied  that  the  Commission  ever  recommended  the  abolition  of 
the  imprisonment  penalty.  For  such  a  denial  and  an  effective  answer  see 
remarks  of  Senators  LaFollette  and  Foraker  in  Congressional  Record  of  May 
10,  1906.  But  on  December  8,  1899,  as  shown  by  the  official  records,  the  Com- 
mission, by  unanimous  vote,  directed  its  executive  officer  to  "cooperate  with 
certain  mercantile  organizations  to  secure  the  adoption  of  amendments  to  the 
Act  to  regulate  commerce,"  and  among  the  amendments  specifically  included  in 
this  instruction  was  one  doing  away  with  the  imprisonment  penalty.  The  officer 
in  question  was  ordered  to  "devote  himself  assiduously  to  such  duty." 


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Yale  Review, 


[Aug. 


for  a  term  of  not  exceeding  two  years,"  and  the  second  provides 
a  civil  forfeiture  by  the  recipient  of  any  rebate  equal  to  three 
times  the  sum  so  received.  The  new  law  contains  further  pro- 
visions intended  to  prevent  rebating  in  the  requirements  for  uni- 
form accounts  to  be  prescribed  by  the  Commission  and  at  all 
times  open  to  its  inspection  and  the  prohibition  of  keeping  any 
other  records,  accounts  or  memoranda. 

Such  is  the  legislative  history  of  the  attempt  to  eliminate  from 
American  railway  practice  the  evil  of  secret  rates  and  those 
unjust  discriminations  which  are  accomplished  by  means  of 
unlawful  concessions  from  the  rates  regularly  scheduled.  From 
this  point  of  view  interstate  railway  transportation  is  divided  into 
two  principal  periods,  which  are :  (first)  the  period  prior  to  April 
5,  1887,^  when  there  was  no  statutory  obligation  to  publish  rates 
or  to  conform  to  them  when  published,  and  (second)  the  period 
since  April  5,  1887,  during  which  the  publication  of  rates  has  been 
required  and  only  the  published  rates  could  lawfully  be  charged. 
The  second  period  is  also  susceptible  of  division  as  shown  by 
the  table  on  the  next  page. 

Bearing  in  mind  these  successive  states  of  the  law  and  the 
dates  on  which  each  of  them  began  and  ended,  it  is  worth  while 
to  trace  the  degree  of  success  attained  in  the  enforcement  of 
the  law,  as  faithfully  recorded  in  the  reports  of  the  Interstate 
Commerce    Commission.      It    will    but    slightly    anticipate    the 
results  of  such  an  effort  to  observe  that  the  beginning  of  each 
of  the  five  periods  indicated  in  the  table  has  generally  been 
characterized  by  a  sudden  cessation  of  complaints  of  the  for-- 
bidden  practices  which,   after  a  respite  of  longer  or  shorter 
duration,  have  never  failed  to  reappear  and  not  always  with 
diminished   intensity.      Of   course   this   recrudescence   has    not 
occurred  under  the  law  that  became  effective  in  August,  1906, 
but  the  period  of  opportunity  is  still  short  and  it  is,  perhaps, 
too  early  to  declare  with  confidence  that  the  obnoxious  practices, 
which  have  survived  four  previous  states  of  the  prohibitive  law 
although    each    was,    in    its    turn,    authoritatively    declared    to 
approximate,  if  not  to  attain,  perfection,  have  forever  disap- 
peared. 

^The  Interstate  Commerce  law  was  approved  on  February  4,  1887,  and  took 
effect  sixty  days  later. 


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The  first  ten  months'  experience  under  the  statute  of  February 
4,  1887,  convinced  the  Interstate  Commerce  Commission  that 
rebates  were  already  obsolete.    The  report  said : — 

"There  is  every  reason  to  believe,  however,  that  some  of  the 
most  serious  evils  which  were  notorious  in  the  railway  service 
before  the  passage  of  the  act,  and  were  in  the  legislative  mind 
as  reasons  for  its  enactment,  have  now  almost  ceased  to  exist. 
One  of  these  was  the  giving  of  special  and  secret  rebates." — First 
Annual  (1887)  Report,  p.  25. 

In  the  same  report  the  Commission  expressed  the  opinion, 
similar  to  that  frequently  heard  at  the  present  time,  that  the 
railways  were  receiving  increased  revenues  on  account  of  the 
new  law. 

"It  has  operated  directly  to  increase  railroad  earnings,  espe- 
cially in  the  cutting  off  of  free  passes  on  interstate  passenger 
traffic,  and  in  putting  an  end  to  rebates,  drawbacks,  and  special 
rates  upon  freight  business." — pp.  41-42. 

And  again,  in  the  same  report: 

"Freight  traffic  for  the  year  has  been  exceptionally  large  in 
volume,  and  is  believed  to  have  been  in  no  small  degree  stimu- 
lated by  a  growing  confidence  that  the  days  of  rebates  and  special 
rates  were  ended." — p.  42. 

The  Commission  also  reported^  that  "among  all  the  com- 
plaints" it  had  received  not  one  had  alleged  "a  specific  act"  in 
violation  of  the  law  against  departures  from  the  tariff  rates 
and  that  in  the  litigated  cases  in  which  it  had  been  required  to 
take  testimony  concerning  railway  practices  at  important  traffic 
centers  there  had  been,  in  all  but  "a  single  exceptional 
instance," — 

".  .  .  entire  agreement  in  the  proofs  that  special  rates 
to  individuals  and  secret  rebates  were  no  longer  made;  .  .  . 
— P-  25. 

The  Second  Annual  Report  of  the  Commission,  issued  in 
December,  1888,  devotes  much  less  space  to  the  question  of 
rebates  but  discloses  a  somewhat  diminished  confidence  in  the 

^  First  Annual  (1887)  Report,  p.  25. 


I!i!|| 


ipiM^iiiiiPi 


IH" 


1907] 


Rebates, 


139 


complete  efficacy  of  the  prohibitive  portions  of  the  law.  It 
relates^  that  early  in  the  year  the  Commission  became  convinced 
that  fraudulent  underbilling  of  freight  "was  being  somewhat 
extensively  practiced,"  and  that  during  the  year  there  had  been 
a  succession  of  rate-wars^  which  had  been  accompanied  by  "vio- 
lations of  the  Act"  in  the  form  of  "secret  rate-cutting." 

Three  months  after  the  report  containing  the  foregoing  had 
been  published  the  amendment  establishing  the  imprisonment 
penalty  and  extending  all  penalties  to  the  recipients  of  rebates 
became  effective.  In  its  next  report^  the  Commission  announced* 
that  the  time  had  arrived  for  "more  aggressive  steps"  in  the 
enforcement  of  the  law,  but  suggested  that  evidence  of  rebates 
was,  in  the  nature  of  things,  exceedingly  difficult  to  obtain: — 

"•  •  •  .  violations  of  a  more  private  character,  such  as 
rebates  or  discriminations  in  rates  for  freight  or  passengers,  or 
underbilling  or  false  billing  of  traffic,  cannot  exist  without  com- 
plicity between  the  shippers  and  the  carriers.  These  are  never 
open  or  public,  but  secret.  The  interest  of  both  parties  to  the 
transaction  requires  concealment,  as  well  to  escape  the  penalties 
of  the  law  as  for  other  reasons.  Proof  of  such  cases  is  obviously 
difficult  to  obtain.  Instances  occur  in  which  the  inference  is 
strong  that  some  feature  of  the  law  has  been  violated  or  evaded, 
but  inferences  to  warrant  convictions  must  be  drawn  from  facts 
and  circumstances  proved,  and  when  both  parties  to  such  trans- 
actions are  interested  in  keeping  them  secret,  or  liable  to  similar 
punishment,^  the  necessary  evidence  of  the  facts  tending  to 
show  culpability  of  a  carrier,  or  of  some  officer  or  agent,  is  not 
easily  procured." — Third  Annual  (1889)  Report,  p.  107. 

^  Page  10.  2  Pages  18-24. 

^  Third  Annual  (1889)  Report.  *Page  107. 

5  Yet  in  its  previous  report  the  Commission  had  recommended  the  change 
which-  made  shippers  liable  and  created  the  difficulty  in  question,  saying, 
"There  are  provisions  in  the  Act  as  it  now  stands  which  would  render  the  car- 
rier, its  officers  or  agents,  punishable  if  by  false  billing,  false  classification,  false 
weighing,  or  false  report  of  weight,  or  by  any  other  device  or  means  whatsoever, 
they  shall  give  undue  or  unreasonable  preferences  or  advantages.  The  Com- 
mission believes  that  the  penal  provisions  against  wrongs  of  this  nature  should 
embrace  also  the  owner  of  the  property  or  any  party  acting  for  the  owner  or  con- 
signor of  property  who  shall  be  a  party  to  any  such  unlawful  conduct,  and  it 
urges  the  passage  of  the  provisions  on  the  subject  contained  in  the  pending 
bill."     Second  Annual  (1888)  Report,  p.  69. 


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JKia:/.^  Review, 


[Aug. 


The  Fourth  Annual  Report  of  the  Commission  bears  date  as 
of  November  29,  1890,  and  indicates  a  considerable  laxity  of 
regard  for  the  provisions  against  the  various  forms  of  rebates. 
A  large  portion  of  this  report  was  devoted  to  the  discussion  of 
illegal  concessions  from  the  published  tariffs,  the  Commission 
saying : — 


"The  Act  to  regulate  commerce  is  perhaps  most  often  dis- 
regarded in  the  giving  of  rebates  or  the  granting  of  special  rates 
for  the  transportation  of  property  of  large  shippers." — p.  7. 

In  another  place  in  this  report  the  Commission  quoted,  appar- 
ently as  expressing  what  it  regarded  as  an  accurate  portrayal  of 
events,  an  alleged  interview,  which  it  stated  had  not  been  dis- 
claimed, with  an  unnamed  "railroad  manager."  The  quoted 
statement  follows: — 

"The  situation  in  the  West  is  so  bad  that  it  could  hardly  be 
worse.  Rates  are  absolutely  demoralized,  and  neither  the 
shippers,  the  passengers,  the  railways,  or  the  public  in  general 
make  anything  by  this  state  of  affairs.  The  profit  is  all  secured 
by  the  middleman,  the  go-between.  Take  passenger  rates,  for 
instance.  They  are  very  low;  but  who  get  the  benefit  of  the 
reduction?  Why,  no  one  but  the  scalpers,  who  have  nothing  at 
stake,  everything  to  win  and  nothing  to  lose.  In  freight  matters 
the  case  is  just  the  same.  Certain  shippers  are  allowed  heavy 
rebates,  while  others  are  made  to  pay  full  rates.  Some  of  these 
shippers  are  constantly  afraid  of  being  hauled  up  before  the 
Interstate  Commerce  Commission,  but  they  need  have  no  fear 
from  that  direction.  The  management  of  rates  is  dishonest  on  all 
sides,  and  there  is  not  a  road  in  the  country  that  can  be  accused 
of  living  up  to  the  rules  of  the  Interstate  Commerce  law.  Of 
course  when  some  poor  devil  comes  along  and  wants  a  pass  to 
save  him  from  starvation,  he  has  several  clauses  from  the  Inter- 
state act  read  to  him.  But  when  a  rich  shipper  wants  a  pass, 
why,  he  gets  it  at  once." — p.  25. 

Commenting  on  the  foregoing,  the  Commission  said,  in 
part : — • 

"Statements  like  that  of  the  railroad  manager,  given  above, 
have  found  justification  in  the  sudden  diversion  of  business  from 
one  road  to  another,  in  the  frequency  with  which  products  are 
sold  in  the  market  for  less  than  cost,  including  published  rates 


1907] 


Rebates. 


141 


of  transportation,  and  in  such  other  circumstances  attending  the 
traffic  as  lead  to  the  conclusion  that  less  than  legal  rates  are  col- 
lected from  many  favored  shippers.  Like  declarations  as  to 
unjust  discriminations,  giving  of  rebates  and  unlawful  prefer- 
ences have  been  reiterated  in  the  press  as  well  as  in  published 
statements  of  numerous  railroad  officials. 

"Since  the  presentation  of  our  last  annual  report,  officers,  man- 
agers, and  responsible  representatives  of  the  roads,  or  some  of 
them,  have  often  declared  that  the  established  and  published 
rates  were  not  maintained,  that  some  favored  shippers  paid  less 
while  others  paid  full  rates,  and  that  the  roads  which  obeyed  the 
law  frequently  did  so  to  their  serious  injury  and  with  the  loss 
of  business  and  earnings." 

The  Commission's  reports  for  1891^  and  18922  discuss 
rebates  quite  as  though  they  constituted  a  well  recognized, 
although  reprehensible,  incident  of  the  business  of  interstate  rail- 
way transportation  which  would  remain  inevitable  at  least  until 
the  enactment  of  further  legislation.  Similarly  the  report  for 
1893  said: — 

"That  the  public  tariff  charges  are  frequently  departed  from 
in  particular  localities,  that  rebates  are  paid,  and  that  other  pro- 
hibitions of  the  statute  are  disregarded  is  believed  by  many  to 
be  true. 

The  legal  proof  of  these  violations  may  not  be  obtainable, 
yet  the  fact  of  their  occurrence  is  a  moral  certainty." — Seventh 
Annual  Report,  p.  8. 

At  this  time,  however,  the  Commission  did  not  care  for 
further  authority  to  deal  with  the  subject,  which  it  plainly 
regarded  as  somewhat  incompatible  with  the  more  lofty  concep- 
tion of  its  responsibilities  and  prerogatives  as  the  beneficent 
creator  of  industrial  equality,  the  mighty  protector  of  economic 
peace  and  the  wise  and  impartial  dispenser  of  commercial  jus- 
tice.^    It  therefore  protested  against  being  charged  with  new 

'  Pages  12-14,  34-41-  '^  Pages  28-30,  40. 

^It  was  in  this  report  that  the  Commission  expressed  its  view  of  the  work  of 
regulation  in  these  justly  celebrated  sentences:  "To  give  each  community  the 
rightful  benefits  of  location,  to  keep  different  commodities  on  an  equal  footing, 
so  that  each  shall  circulate  freely  and  in  natural  volume,  and  to  prescribe  rates 
which  shall  be  reasonably  just  to  both  shipper  and  carrier,  is  a  task  of  vast  mag- 
nitude and  importance.  In  the  performance  of  that  task  lies  the  great  and  per- 
manent work  of  public  regulation." — p.  10. 


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142 


Yale  Review. 


[Aug. 


burdens  connected  with  the  mere  execution  of  plain  provisions 
of  statutory  law,  the  discovery  of  infractions  of  such  provisions 
or  the  punishment  of  offenders,  saying,  in  part: — 

"The  offense  is  made  penal  by  the  terms  of  the  statute;  its 
discovery  and  punishment  belong  to  the  administration  of  the 
criminal  law.  No  amendment  of  this  statute,  therefore,  is  neces- 
sary or  suitable  with  the  view  of  giving  greater  power  to  the 
Commission  in  enforcing  its  penal  provisions.  If  immunity  is 
secured  from  these  demoralizing  offenses,  if  the  notorious  and 
intolerable  practices  which  the  present  law  condemns  are  effec- 
tually dealt  with,  it  will  be  through  greater  vigilance  and  more 
vigorous  effort  on  the  part  of  those  who  are  charged  with  the 
duty  of  executing  the  criminal  laws,  aided,  it  may  be,  by  enact- 
m.ents  which  tend  to  diminish  the  inducements  to  such  trans- 
gressions."^— p.  8. 

The  years  1894  and  1895  seem  to  have  passed  without  any 
outbreaks  of  rate-cutting  sufficient  to  seem  to  the  Commission 
to  demand  special  attention  in  its  annual  reports.  During  both 
of  them  the  law  of  February  11,  1893,  was  in  existence,  although 
its  legality  was  questioned  and,  as  already  noted,  a  witness  who 
declined  to  accept  it  was  discharged  by  Judge  Grosscup^  on 
the  ground  that  it  was  unconstitutional.  In  1896^  the  Supreme 
Court  sustained  this  law  and  its  decision  was  hailed  in  the  Com- 
mission's report  for  that  year  with  the  anticipations  of  the  com- 
plete eradication  of  the  pernicious  practices  which  have  already 
been  quoted.*  Nevertheless  the  very  next  report  records  the 
almost  complete  failure  of  these  hopes.  The  Commission  was 
forced  to  report  that: — 


<<•' 


We  are  constrained  to  believe  that  one  of  the  worst  features 
in  the  present  situation  arises  from  a  departure  from  the  pub- 
lished rate  in  favor  of  particular  shippers. 


* 


* 


ii^ 


'We  have  no  doubt  that  at  the  present  time  very  large  quanti- 
ties of  competitive  traffic  are  carried  at  other  than  published  rates. 

'  For  additional  evidence  that  the  Commission  did  not  desire  to  undertake  the 
detection  and  punishment  of  rebating  see  the  testimony  of  Mr.  Walker  D.  Hines 
before  the  Committee  on  Interstate  Commerce  of  the  United  States  Senate. 
Hearings  before  the  Committee  on  Interstate  Commerce,  United  States  Senate, 
pursuant  to  Senate  Resolution  No.  288,  Fifty-eighth  Congress,  Third  Session, 
Vol.  II,  p.  1172-1180. 

'Ante,  p.  128.  ^Ante,  p.  130.  *Ante,  p.  131. 


>*f-^:«S^i5S«?S»!^^i^^?l 


1907] 


Rebates, 


143 


"The  effect  of  this  rate-cutting  is  most  unfortunate.  Inci- 
dentally it  prefers  the  large  to  the  small  shipper.  Rebates  can 
not  be  given  to-day  as  they  were  before  the  passage  of  this  act, 
nor  as  they  were  before  the  Brown  decision  even.  Various 
devices  are  resorted  to.  Only  a  few  can  know  of  the  transaction. 
The  whole  matter  must  be  covered  up  and  kept  secret,  with  the 
result  that  the  large  shipper,  the  trust,  the  monopoly,  is  able  to 
secure  the  concession,  while  the  small  shipper  is  obliged  to  pay 
the  published  rates,  and  this  concession,  while  at  the  present  time 
small  as  a  rule  in  individual  instances,  is  often  very  large  in  the 
aggregate."— Eleventh  Annual  (1897)  Report,  pp.  46,  47,  48. 

For  1898  the  report  was  more  specific,  covering  a  large  num- 
ber of  special  instances  of  demoralization  including  rates  on 
flour,  turpentine  and  coal.  The  situation  in  general  was  strongly 
summarized  as  follows: — 

"Meanwhile  the  situation  has  become  intolerable,  both  from 
the  standpoint  of  the  public  and  the  carriers.  Tariffs  are  dis- 
regarded, discriminations  constantly  occur,  the  price  at  which 
transportation  can  be  obtained  is  fluctuating  and  uncertain.  Rail- 
road managers  are  distrustful  of  each  other  and  shippers  all  the 
while  in  doubt  as  to  the  rates  secured  by  their  competitors.  The 
volume  of  traffic  is  so  unusual  as  to  frequently  exceed  the  capac- 
ity of  equipment,  yet  the  contest  for  tonnage  seems  never  relaxed. 
Enormous  sums  are  spent  in  purchasing  business  and  secret  rates 
accorded  far  below  the  standard  of  published  charges.  The  gen- 
eral public  gets  little  benefit  from  these  reductions,  for  conces- 
sions are  mainly  confined  to  the  heavier  shippers." — Twelfth 
Annual  (1898)  Report,  pp.  5-6. 

The  melancholy  chapter  of  violations  of  a  statute  which  seems 
to  most  citizens  to  be  but  the  enactment  of  a  rule  of  elementary 
justice  is  here  interrupted  by  what  is  properly  regarded  as  the 
brightest  incident  in  the  history  of  the  Commission.  Under  com- 
pulsion of  the  conditions  recorded  in  the  foregoing  extract  and 
the  wise  leadership  of  its  able  and  far-seeing  chairman,  the 
Commission  refused  "to  accept  the  situation  as  unavoidable" 
and  to  content  itself  "with  reporting  to  Congress.  .  .  that 
the  requirements  of  the  Act  respecting  the  observance  of  pub- 
lished tariffs  were  not  enforceable,"  as  it  acknowledged  it  had 


•npifPf 


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lipiiw  f' 


144 


Va/e  Review. 


[Aug. 


1907] 


Rebates. 


145 


i 

'1 


done  in  the  past,^  but,  on  the  contrary,  went  vigorously  to  work 
"to  bring  about  such  new  conditions  as  would  render  these  pro- 
visions operative  to  the  fullest  extent  practicable."^  The  salu- 
tary and  effective  means  adopted  was  to  hold  a  series  of  general 
conferences  with  the  controlling  officers  of  the  carriers  located 
in  the  sections  in  which  demoralization  existed  or  was  threatened 
and  by  such  conferences  and  all  other  proper  and  available  means 
to  exercise  mediatory  offices  for  the  prevention  of  infractions  of 
the  law.  Critics  of  the  Commission,  among  them  those  who 
profited  or  hoped  to  profit  by  secret  rate-cutting,  did  not  hesitate 
to  assert,  with  some  superficial  show  of  accuracy,  that  these 
conferences,  if  effective  at  all,  must  result  in  agreements  that 
would  be  perilously  near  to  those  prohibited  by  the  Sherman 
anti-trust  law^  which  had  been  twice  declared  by  the  Supreme 
Court*  to  forbid  every  restraint  of  the  interstate  commerce  con- 
ducted by  railways  whether  such  restraint  were  reasonable  or 
unreasonable.  To  this,  however,  the  Commission  was  able  to 
make  the  effective  reply  that  it  did  not  seek  to  obtain  agreements 
not  to  reduce  rates  but  merely  concurrent  promises  to  observe 
the  law  which  forbids  deviations  from  the  formally  published 
rates  and  prescribes  the  manner  in  which  they  may  be  legally 
modified.^  Certainly  no  statute  can  be  construed  to  forbid  agree- 
ments to  obey  some  other  and  unrepealed  rule  of  conduct  pre- 
scribed by  the  same  supreme  legislative  authority.  As  the  result 
of  these  wise  steps  the  Commission  was  able  to  say: 

"All  reports  agree  that  there  has  been  a  marked  improvement 
in  the  maintenance  of  published  rates,  and  that  unlawful  prac- 
tices by  railroad  carriers  have  been  less  general  and  conspicu- 
ous than  for  some  years  before.  Secret  discriminations  are 
believed  to  be  much  less  frequent  than  was  formerly  the  case, 
and  the  general  situation  in  this  regard  is  undoubtedly  much 
better  than  it  was  at  the  time  of  our  last  annual  report." — Thir- 
teenth Annual  (1899)  Report,  p.  11. 

^  Thirteenth  Annual  (1899)  Report,  p.  9. 
^  Ibid.,  p.  9. 

'Approved  Jul}^  i,  1890.     26  Statutes  at  Large,  209. 

^Trans-Missouri  Freight  Association  v.  United  States,  166  U.  S.,  290.     Joint 
Traffic  Association  V.  United  States,  171  U.  S.,  505. 
*  Thirteenth  Annual  (1S99)  Report,  pp.  9-10. 


The  years  immediately  subsequent  to  that  covered  by  the  report 
from  which  the  foregoing  was  quoted  were  years  of  unprece- 
dented business  activity  during  which  the  traffic  offered  for  inter- 
state transportation  by  rail  frequently  exceeded  the  capacity  of 
the  carriers  and  the  incentive  to  rate-cutting  was  therefore 
weaker  than  during  a  period  of  less  intensity  of  demand.  Never- 
theless it  was  not  a  period  of  complete  exemption  from  the 
obnoxious  and  baneful  practice  of  rebating.  The  Commission 
reports  as  follows: — 

"More  instructive  than  any  argument  are  the  results  of  an 
investigation  just  made  at  Chicago  into  the  movement  of  pack- 
ing-house products,  a  more  detailed    account    of    which    here- 
after appears.    The  facts  developed  upon  that  investigation,  and 
upon  a  previous  investigation  into  the  movement  of  grain  and 
grain  products,  which  is  also  referred  to  later,  are  of  such  a 
character  that  no  thoughtful  person  can  contemplate  them  with 
indifference.     That  the  leading  traffic  officials  of  many  of  the 
principal  railway  lines,  men  occupying  high  positions  and  charged 
with  the  most  important  duties,  should  deliberately  violate  the  stat- 
ute law  of  the  land,  and  in  some  cases  agree  with  each  other  to  do 
so ;  that  it  should  be  thought  by  them  necessary  to  destroy  vouch- 
ers and  to  so  manipulate  bookkeeping  as  to  obliterate  evidence 
of  the  transactions ;  that  hundreds  of  thousands  of  dollars  should 
be  paid  in  unlawful  rebates  to  a  few  great  packing  houses ;  that 
the  business  of  railroad  transportation,  the  most  important  but 
one  in  the  country  to-day,  paying  the  highest  salaries  and  hold- 
ing out  to  young  men  the  greatest  inducements,  should  to  such 
an  extent  be  conducted  in  open  disregard  of  law,  must  be  sur- 
prising  and   offensive   to   all   right-minded   persons.      Equally 
startling,  at  least,  is  the  fact  that  the  owners  of  these  packing 
houses,  men  whose  names  are  known  throughout  the  commercial 
world,  should  seemingly  be  eager  to  augment  their  gains  with 
the  enormous  amounts  of  these  rebates  which  they  receive  in 
plain  defiance  of  a  Federal  statute." — Fifteenth  Annual  (1901) 
Report,  p.  6. 

In  the  annual  report  next  following  that  from  which  the  fore- 
going was  taken  the  Commission  reported  a  new  effort  to 
improve  conditions.^  This  time  it  had  relied  neither  upon  the 
criminal   processes   provided   under  the   law   nor   upon   moral 

^  Sixteenth  Annual  (1902)  Report,  pp.  7-13. 
10 


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146 


Yale  Review. 


[Aug. 


suasion  in  interviews  and  conferences,  but  upon  the,  then,  some- 
what doubtful  powers  of  the  Federal  courts  of  equity.  Injunc- 
tions against  rate-cutting  by  many  important  carriers  were  sought 
and  obtained,  although  the  power  to  grant  them,  prior  to  the 
enactment  of  the  Elkins  law,  was  more  than  questionable,  and 
they  probably  could  not  have  been  secured  were  it  not  that,  as 
reported  by  the  Commission,^  "railroad  managers,  as  a  rule, 
.  .  .  welcomed  these  injunctions  as  applied  to  the  mainten- 
ance of  rates,  .  .  ."  Their  effect  was  such  that  the  Commis- 
sion was  also  able  to  state  that : — 

"It  is  asserted,  and  the  Commission  believes,  that  these  rail- 
ways have  obeyed  the  injunctions,  in  the  main  if  not  altogether; 
that  published  rates  have  been  exacted  upon  their  lines,  and 
very  generally  by  other  lines  in  competition  with  them.  It  can 
hardly  be  doubted  that  a  very  much  better  condition  has  existed 
for  the  last  nine  months  in  this  respect  than  for  any  correspond- 
ing period  in  the  last  twelve  years  at  least." — Sixteenth  Annual 
(1902)   Report,  p.  9. 

The  next  report  was  issued  after  the  Elkins  law  had  been  in 
force  for  a  period  of  ten  months.  The  injunctions  which  had 
been  of  doubtful  legality  prior  to  this  change  in  the  law  were 
fully  authorized  by  the  new  statute  and  the  Commission  was 
empowered  to  proceed  to  secure  additional  injunctions  of  similar 
character  whenever  it  had  "reasonable  ground  for  belief"  that 
rebates  were  being  allowed.    It  reported  that : — 

"Without  further  reference  to  the  changes  effected  by  this 
amendatory  legislation  the  Commission  feels  warranted  in  say- 
ing that  its  beneficial  bearing  became  evident  from  the  time  of 
its  passage.  It  has  proved  a  wise  and  salutary  enactment.  It 
has  corrected  serious  defects  in  the  original  law  and  greatly  aided 
the  attainment  of  some  of  the  purposes  for  which  that  law  was 
enacted.  No  one  familiar  with  railway  conditions  can  expect 
that  rate-cutting  and  other  secret  devices  will  immediately  and 
wholly  disappear,  but  there  is  basis  for  confident  belief  that  such 
offenses  are  no  longer  characteristic  of  railway  operations.  That 
they  have  greatly  diminished  is  beyond  doubt,  and  their  recur- 
rence to  the  extent  formerly  known  is  altogether  unlikely. 
Indeed,  it  is  believed  that  never  before  in  the  railroad  history  of 

*  Sixteenth  Annual  (1902)  Report,  p.  10. 


> 


1907] 


Rebates, 


147 


this  country  have  tariff  rates  been  so  well  or  so  generally 
observed  as  they  are  at  the  present  time.^ — Seventeenth  Annual 
(1903)  Report,  p.  10. 

Confidence  that  the  Elkins  law  was  operating  so  successfully 
as  to  secure  "the  invariable  application  of  tariff  rates''^  was  also 
expressed  in  the  next  report  of  the  Commission.  Even  as  late 
as  May,  1905,  the  Chairman  of  the  Commission,  testifying  before 
the  Committee  on  Interstate  Commerce  of  the  Senate,  said : 


"Now,  if  I  may  add  one  word  about  the  Elkins  bill.  A  more 
effective  and  complete  measure  for  its  purpose  has  not  come 
within  my  observation.     It  is  invaluable."^ 

At  the  same  time  Mr.  Knapp  said,  concerning  rebating,  that 
when  the  Elkins  bill  passed,  "the  thing  stopped  over-night." 
But  this  condition  of  complete  satisfaction  did  not  long  persist. 
The  Nineteenth  Annual  Report  bears  date  as  of  December  14, 
1905,  and  contains  the  following: — 

"In  our  annual  report  for  1903  we  endeavored  to  explain  the 
changes  in  the  regulating  statute  effected  by  the  Elkins  law,  so- 
called,  which  was  approved  in  the  previous  February,  and  made 
some  favorable  comments  upon  its  operation.  A  similar  opinion 
was  expressed  in  the  report  made  a  year  ago.  Further  experi- 
ence, however,  compels  us  to  modify  in  some  degree  the  hopeful 
expectations  then  entertained.  Not  only  have  various  devices  for 
evading  the  law  been  brought  into  use,  but  the  actual  payment  of 
rebates  as  such  has  been  here  and  there  resumed."* 

The  foregoing  quotation  is  from  the  last  report  under  the  law 
as  it  stood  prior  to  August  28,  1906.  The  Twentieth  Annual 
Report  was  issued  on  December  19,  1906,  and,  owing  to  the  radi- 
cal reorganization  of  the  system  of  statutory  regulation  just 
going  into  operation,  was,  very  properly,  confined  almost  wholly 

^  President  Roosevelt  was  so  impressed  with  the  efficacy  of  the  Elkins  law  that 
in  his  Annual  Message  to  Congress,  transmitted  on  December  7,  1903,  he  said: 

"The  Congress  .  .  .  has  secured  equal  treatment  to  all  producers  in  the 
transportation  of  their  goods,     .     .     .     ." 

'^  Eighteenth  Annual  (1904)  Report,  p.  6. 

3  Hearings  before  Committee  on  Interstate  Commerce,  United  States  Senate, 
pursuant  to  Senate  Resolution  No.  288,  Fifty-eighth  Congress,  Third  Session,' 
Vol.  IV,  p.  3306. 

4  Page  13. 


»^*"**« 


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i 


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i.^  s 


148 


y<2/^  Review, 


[Aug. 


to  a  statement  of  the  interpretation  of  and  rulings  under  the 
new  law.  It  contains  no  record  of  the  year's  experience  as  to 
maintenance  of  tariff  rates,  but  such  outside  evidence  as  is  avail- 
able warrants  the  belief  that  the  tariff  rates  were  observed  with 
comparatively  rare  exceptions.  As  has  been  seen,  each  statu- 
tory "new  broom"  has  swept  satisfactorily  and  there  is  no  reason 
to  believe  that  the  present  one  is  an  exception  in  that  respect. 
It  is  to  be  hoped  that  it  will  prove  to  have  exceptional  wearing 
qualities. 

Reporting  to  Congress  on  December  i,  1906,  Honorable  Wil- 
liam H.  Moody,  then  Attorney-General  of  the  United  States, 
characterized  the  efforts  to  enforce  the  penalties  for  violations  of 
the  Act  to  regulate  commerce  of  February  4,  1887,  and  its 
amendments  (not  including  the  Elkins  law,  which  is  not  in  terms 
an  amendatory  statute)  as  "not  conspicuously  successful."  This 
statement  is  certainly  a  moderate  one,  for  during  the  period  of 
but  a  few  months  less  than  twenty  years  that  it  was  in  force 
there  were,  altogether,  but  seventeen  convictions,  no  sentences 
of  imprisonment  were  executed^  and  the  total  fines  imposed 
aggregated  but  $16,376,  while  the  government  failed  in  sixty- 
two  indictments  out  qf  seventy-nine.^  The  Elkins  law,  declares 
the  Attorney-General, — 


(( 


very  much  strengthened  the  hands  of  the  government  in  deal- 
ing with  discriminatory  practices  of  railroads." — Annual  Report 
for  1906,  p.  II. 

There  were,  however,  no  prosecutions  for  rebating  instituted 
under  this  law  during  the  first  two  years  after  its  enactment,  the 
first  indictment  being  secured  on  July  i,  1905.  Two  more  indict- 
ments were  obtained  in  the  following  October,  one  in  Novem- 
ber, a  large  number  in  December  and  many  more  during  the 

'  On  July  21,  1892,  two  persons  were  convicted  of  false  weighing  and  sentenced 
to  pay  fines  of  $2,000  each  and  iS  months  imprisonment,  but  both  were  pardoned 
before  execution  of  the  sentences.  See  pamphlet  issued  by  Department  of 
justice,  under  date  of  March  7,  1907,  entitled  "  Civil  and  Criminal  Cases  Insti- 
tuted by  the  United  States  under  the  Sherman  Anti-Trust  Law  of  July  2,  1890, 
and  the  Act  to  Regulate  Commerce,  approved  February  4,  1887,  as  amended, 
including  the  Elkins  Act,"  p.  15. 

2  Annual  Report  of  the  Attorney-General  for  1906,  p.  11.  * 


1ft 


</t       ^^ 


*^ 


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i^. 


''$) 


^ 


1907]  Rebates.  I49 

year  1906.^  The  Attorney-General  states  that  from  October, 
1905,  "when  the  situation  was  first  fully  realized,"  to  the  end 
of  November,  1906,  there  were  seventy-seven  indictments,  of 
which,  at  the  date  of  his  report,  fifty-three  were  still  pending, 
and  twenty-four  had  been  disposed  of.  The  result  of  the  twenty- 
four  completed  cases  had  been  eighteen  convictions,  three  discon- 
tinuances, two  verdicts  of  not  guilty  and  one  indictment  held  bad 
upon  demurrer.  Thirteen  corporations  and  seventeen  individuals 
were  found  guilty  and,  excluding  one  case  in  which  sentence  had 
not  been  passed,  the  individuals  had  been  fined  from  $1,000  to 
$10,000  each  and  the  corporations  from  $15,000  to  $108,000 
each,  the  fines  aggregating  $416,125.  The  imprisonment  pen- 
alty prescribed  under  the  amended  Elkins  law  had  not  become 
practically  operative  at  the  date  of  the  report,  but  on  one  indict- 
ment, under  Section  5440^  of  the  Revised  Statutes,  the  anti-con- 
spiracy law,  two  defendants  were  fined  and  also  sentenced  to 
three  and  six  months'  imprisonment,  respectively.^  After  the 
date  of  the  report  and  to  March  7,  1907,  four  corporations, 
among  them  the  American  Sugar  Refining  Company,  were  fined, 
in  the  aggregate,  $158,000  and  four  individuals  were  fined 
$12,000.*  Thus,  fines  under  the  Elkins  act  now  aggregate 
$586,125.  There  have  been  no  further  sentences  of  imprison- 
ment. This  record  of  prosecutions,  in  connection  with  the  facts 
as  to  the  prevalence  of  rebating  hereinbefore  presented,  plainly 
discloses  the  fact  that  for  eighteen  years  there  was  no  vigorous 
and  intelligent  effort  to  detect  and  punish  deviations  from  the 
published  rate-schedules.  For  when,  more  than  four  years  after 
he  became  President,  the  present  Chief  Executive  concluded 
that : — 

"It  seemed,  therefore,  desirable  that  an  earnest  effort  should  be 
made  to  enforce  the  law  rigorously,"— Report  of  Attorney-Gen- 
eral for  1906,  p.  12. 

it  was  not  under  a  new  law  but  under  the  old  laws  that  successful 
prosecutions  were  found  to  be  practicable.    No  law  has  yet  been 

»  Pamphlet  of  Department  of  Justice  previously  cited,  pp.  21,  et  seq. 

2  Ante,  p.  134,  foot-note. 

3  Annual  Report  of  the  Attorney-General  for  1906,  p.  12. 

4  Pamphlet  of  Department  of  Justice  previously  cited,  pp.  21,  et  seq. 


A 


r^^*":'r^'vm:^-'-  :^f 


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■  ^--aii«yw?3 


if 


i 


150 


Yale  Review. 


[Aug. 


invoked  to  secure  indictments  or  to  obtain  evidence  or  other- 
wise in  aid  of  detection  or  prosecution  which  was  not  in  force 
as  long  ago  as  February  19,  1903,  and  the  only  sentences  to 
imprisonment  that  have  ever  been  executed  have  been  under 
laws  which  have  been  in  force  since  April  5,  1887.  The  Attor- 
ney-General naively  ascribes  this  lack  of  enforcement  to  "the 
insufficiency  of  the  law  or  other  reasons."^  The  facts  completely 
eliminate  the  first  of  these  alternatives. 

This  rather  tedious  record  clearly  discloses,  then,  two  prin- 
cipal phenomena  of  great  significance.  These  are  (first)  the 
notorious  and  almost  open  violation  of  the  law  against  rebates 
and  (second)  the  reluctance  of  the  authorities  to  punish  the 
ofiFenders.  The  present  period  of  general  observance  of  the 
schedules  and  more  energetic  enforcement  has  not  yet  persisted 
long  enough  to  be  pronounced  exceptional;  it  will  prove  to  be 
such  only  if  it  outlasts  the  next  period  during  which  rival  rail- 
ways are  forced  to  struggle  over  the  division  of  a  traffic  move- 
ment too  scanty  in  the  aggregate  to  afford  revenues  adequate  to 
the  needs  of  all  of  the  competitors.  In  no  way  anticipating  the 
results  of  such  a  test,  it  may  be  observed,  that  when  a  period 
of  two  successive  decades  is  characterized  almost  continuously 
by  such  incidents  as  are  herein  presented,  the  inquiry  whether 
the  law  itself  is  not  at  fault  becomes  not  only  legitimate  but 
necessary. 

A  rebate  may  be  the  means  of  affording  to  a  particular  shipper, 
commodity  or  locality  an  undue  and,  therefore,  unjust  prefer- 
ence or  advantage  over  other  shippers,  commodities  or  locali- 
ties. But  it  may,  just  as  easily,  be  the  means  by  which  a 
particular  shipper,  commodity  or  locality  is  put  on  an  equal  foot- 
ing, as  to  the  rate  itself,  with  every  other  shipper,  commodity  and 
locality.  If  the  published  rates  are  justly  related  among  them- 
selves every  deviation  from  them  is  an  unjust  discrimination,  but, 
on  the  other  hand,  if  the  published  rates  are  unjustly  related 
to  each  other,  a  not  inconceivable  condition,  justice  as  to  the 
rates  may  be  restored  by  rebating  to  those  unjustly  prejudiced 
the  amount  of  the  improper  advantage  that  would  accrue  to  their 

*  Annual  Report  for  1906,  p.  11. 


V 


/ 

V 


> 


1 


f 


< 


1907] 


Rebates, 


151 


competitors  if  the  schedules  were  observed.     Thus  if,  as  has 
frequently  been  contended,  the  rates,  per  100  pounds,  on  wheat 
and  flour  from  Minneapolis  to  the  Atlantic  seaboard  ought  in 
justice  to  be  equal,  but  the  published  tariffs  show  a  discrimina- 
tion of  2j^  cents  per  100  pounds  in  favor  of  wheat,  a  rebate  of 
2>^  cents  per  100  pounds  to  the  shippers  of  flour  could  not  be 
said  to  produce  an  unjust  discrimination  in  rates.    There  might 
be  a  serious  element  of  injustice  in  the  secrecy  attending  such 
a  transaction  and  the  mere  fact  that  it  results  in  the  actual  pay- 
ment by  all  concerned  of  precisely  the  rates  that,  as  has  been 
assumed,  a  just  and  reasonable  tariff  would  proclaim,  need  not 
weaken  confidence  in  the  utility  of  a  law  that  seems  to  attach 
a  conclusive  presumption  of  injustice  to  every  deviation  from 
the  schedules.     For  the  same  law  that  forbids  rebates  provides 
a  means  for  correcting  unjust  discriminations  in  the  published 
rates  when  they  are  not  eliminated  in  the  ordinary  course  of 
negotiations  between  shippers  and  carriers  and  there  is  no  ques- 
tion that  these  orderly  and  lawful  methods  ought  to  be  followed. 
Nevertheless  it  is  primarily  important  to  grasp  the  elementary 
truth  that  the  wrong  of  rebates  does  not  always,  or  from  the 
nature  of  the  case,  lie  in  the  relation  of  the  rates  ultimately  paid 
but  may  repose  exclusively  in  the  fact  of  secrecy.     When  this 
is  recognized  the  inquiry  may  pass  to  the  question  whether  when 
rebates  have  been  paid,  the  wrong  of  secrecy  has  commonly  been 
accompanied  by  injustice  in  the  actual  payments  or,  on  the  other 
hand,  has  merely  resulted  in  the  payment  of  rates  that,  if  they 
had  been  announced  in  the  tariffs,   would  have  been  wholly 
reasonable  and  just.     In  its  Fifteenth  Annual   (1901)   Report, 
after  stating  that   rebates   amounting  to   "many  hundreds  of 
thousands  of  dollars  annually,"    were  being  paid  to  the  meat- 
packers,  the  Commission  continued  as  follows : — 

"Who  has  the  benefit  of  this  reduction  in  rates?  Does  it 
result  in  advantage  to  the  producer  and  consumer,  or  is  it 
absorbed  by  the  packing  house  itself?  Manifestly,  no  certain 
answers  can  be  given  to  these  inquiries.  It  seems  probable  that 
in  case  of  a  reduction  like  this,  which  seems  to  be  tolerably  uni- 
form and  long  continued,  the  general  public  must  obtain  some 
advantage,  but  we  think  that  in  the  main  these  sums  swell  the 


I 


152 


Yale  Review. 


[Aug. 


> 


1907] 


Rebates. 


153 


m\ 


J 


■1 


profits  of  the  packers.  The  number  of  these  great  concerns  is 
only  some  five  or  six,  and  there  does  not  appear  to  be  much  dis- 
ci imination  between  them.  Each  usually  knows  about  what  the 
lowest  rate  is,  and  usually  manages  to  obtain  that  rate.  The 
effect  is,  however,  to  give  these  large  packers  an  enormous 
advantage  over  their  smaller  competitors  who  are  located  at 
other  intermediate  points." — p.  11. 

The  facts  recited  in  the  foregoing  excerpt  are  (first)  that 
the  largest  concerns  in  the  packing  business  obtained  extensive 
rebates,  (second)  that  they  were  treated,  as  among  themselves, 
with  equality  and  (third)  that  the  smaller  concerns,  located  else- 
where, did  not  get  any,  or  at  least  equivalent,  rebates.  As  the 
Commission  is  silent  on  that  point  it  may  be  assumed  that  the 
small  concerns,  as  among  themselves,  were  also  treated  with 
equality.  On  these  facts,  the  Commission  guesses  that  the  general 
public,  i.  e.  the  consumers,  gained  "some  advantage"  but  that 
the  larger  share  remained  with  the  great  packing  concerns  and, 
also,  that  the  consequence  of  these  rebates  was  "to  give"  these 
great  concerns  an  enormous  advantage  over  their  smaller  rivals. 
The  facts  recited  by  the  Commission  seem,  in  this  case,  much 
more  important  and  reliable  than  its  opinions.  Surely  there  is 
no  proof  that  the  larger  share  of  the  illegitimate  reductions  from 
tariff  rates  did  not  accrue  to  the  consumers  of  meats  and,  per- 
haps, the  difference  in  rates  accurately  measured  an  actual 
difference  in  the  conditions  of  the  several  transportation  services. 
If  so,  the  wrong  lay  only  in  the  illegitimate  secrecy.  That  is, 
the  rebate  payments  accomplished  no  more  than  to  accord  to  each 
shipper  the  rates  that  ought  to  have  appeared  in  the  tariffs. 

Without  pressing  the  inquiry  as  to  these  particular  transac- 
tions the  reader  is  asked  to  give  some  attention  to  the  latter 
suggestion.  If  it  were  possible  to  conclude  that  the  largest 
shippers  are  justly  entitled  to  lower  rates  than  smaller  shippers, 
and  that  this  principle  justifies  other  distinctions  of  quantity 
based  on  higher  units,  perhaps  much  higher  units,  than 
that  of  car-loads  and  less  than  car-loads,  the  conclusion  would 
go  far  to  explain  the  history  recited  in  this  paper.  For  if  the 
larger  shipper  ought  to  have  wholesale  rates  and  if  reduced  rates 


< 


4 


\ 


t  t 


per  unit  of  weight  may  properly  be  accorded  in  more  or  less 
regular  proportion  to  the  multiplication  in  the  number  of  units 
shipped,  it  would  follow  that  rebates  paid  to  large  shippers 
may  have  merely  produced  a  rough  approximation  of  the  rates 
that  ought  to  have  been  shown  on  the  tariffs.  The  record  shows 
that  the  rebates  most  commonly  went  to  this  class  of  shippers, 
that  when  the  dread  of  punishment  was  great  only  the  large 
shippers  got  these  illegal  payments.  Does  such  a  record  tend, 
then,  to  establish  the  theory  that  wholesale  rates,  five-car-load 
rates  lower  than  one-car-load  rates,  ten-car-loads  lower  than  five, 
train-loads  lower  than  ten-car-loads,  etc.,  may  have  a  sanction 
in  economic  necessity.  If  it  be  answered  that  such  rates  enable 
the  "trusts"'  (whatever  they  may  be)  to  drive  out  their  smaller 
rivals,  one  may  at  least  suggest  that  there  are  more  consumers 
of  all  "trust-made"  goods  than  producers  seeking  to  compete 
with  the  "trusts"  which  make  them;  and  it  has  never  yet  been 
shown  that  the  profits  on  capital  used  by  any  "trust"  exceed 
those  of  smaller  manufacturers  when  the  latter  have  no  larger 
rivals  whose  competition  they  must  meet;  or  that  the  larger 
share  of  the  economies,  in  railway  charges  and  in  other  items  of 
cost,  achieved  by  the  largest  concerns  do  not  ultimately  go  to  the 
consumers  of  their  products. 

The  railways  of  the  United  States  have  rarely,  if  ever,  ven- 
tured to  make  lower  rates  on  quantities  above  a  car-load  than  on 
single  car-loads.  Their  officers  do  not  wish  to  make  such  rates. 
But  in  Prussia,  under  state  management,  and  in  England,  under 
private  management,  such  concessions  are  regularly  made.  If  it 
is  true  that  the  practice  of  secret  rate-cutting  in  the  past  is  attrib- 
utable to  some  failure  to  adjust  the  published  rates  to  the 
economic  necessity  of  discriminating  recognition  of  the  peculiar 
conditions  of  enterprises  conducted  upon  the  largest  scale,  it 
would  appear  that  making  wholesale  rates  for  train-loads,  and 
perhaps  other  units  of  quality,  would  go  far  to  relieve  the  situa- 
tion. Authority  to  make  such  just  discriminations  has  not  been 
taken  from  the  railways.  In  Interstate  Commerce  Commission 
V.  Baltimore  and  Ohio,  Judge  Jackson,  then  of  the  Federal 
Circuit  Court,  afterwards  a  justice  of  the  United  States  Supreme 
Court,  said: — 


■-'nmm^^0m#rii ' 


,^m^wmmmms0^^^''^' 


■  iit-^»;tf  1t'S*ial6lW^T'fi 


154 


Yale  Review. 


[Aug. 


1907] 


Rebates. 


155 


1 


I 


I 
■ 


"Subject  to  the  two  leading  prohibitions  that  their  charges 
shall  not  be  unjust  and  unreasonable,  and  that  they  shall  not 
unjustly  discriminate,  so  as  to  give  undue  preference  or  advan- 
tage, or  subject  to  undue  preference  or  disadvantage  persons  or 
traffic  similarly  circumstanced,  the  Act  to  regulate  commerce 
leaves  common  carriers  as  they  v^ere  at  common  law,  free  to 
make  special  contracts  looking  to  the  increase  of  their  business, 
to  classify  their  traffic,  to  adjust  and  apportion  their  rates  so 
as  to  meet  the  necessities  of  commerce,  and  generally  to  manage 
their  important  interests  upon  the  same  principles  which  are 
recognized  as  sound,  and  adopted  in  other  trades  and  pursuits."^ 

The  foregoing  was  affirmed  by  the  Supreme  Court  in  deciding 
the  appeal  in  the  same  case,^  and  was  quoted,  with  approval,  by 
Mr.  Justice  Brewer,  speaking  for  the  Supreme  Court,  in  deliver- 
ing the  opinion  in  a  later  case.^  Precisely  what  Judge  Jackson 
meant  in  referring  to  "principles  recognized  as  sound"  which  the 
carriers  are  left  free  to  follow  was  explained,  in  the  same  opinion, 
as  follows: — 

"Subject  to  these  conditions  and  limitations,  the  Act  does  not, 
and  was  not  intended  to,  restrict  the  common-law  right  and 
power  of  common  carriers  to  make  special  contracts,  or  adjust 
their  rates  with  reference  to  existing  wants  and  circumstances, 
so  as  to  promote  their  own  interests,  while  affording  all  proper 
and  reasonable  facilities  and  conveniences  to  the  public.  Sub- 
ject to  the  above  conditions,  the  Act  intended  to  leave  the  adjust- 
ment of  rates  as  absolutely  and  completely  in  the  discretion  of 
the  carrier  as  it  existed  at  common  law,  which  never  questioned 
or  denied  to  common  carriers  the  right  to  give  or  make  lower 
rates,  based  on  increased  quantity  or  amount  of  service."^ 

It  should  be  observed  that  to  assign  the  denial  of  wholesale 
rates  as  the  primary  cause  of  secret  rate-cutting  is  not  to  assume 
that  every  rebate,  or  even  most  rebates,  resulted  in  actual  charges 
that  correctly  expressed  an  economic  need.  Quite  a  contrary  con- 
clusion is  perfectly  reconcilable  with  the  belief  that  there  would 
have  been  no  rebates,  or  substantially  none,  had  the  published 
schedules  expressed  an  adequate  recognition  of  the  need  of 
wholesale  rates.  The  essential  vice  of  secrecy  in  such  matters 
lies  in  the  fact  that  one  secret  rate  made  in  the  face  of  economic 

H3  Fed.  R^.,  37,  50-51.        '^  I45  U.  S.,  263. 

^  Interstate  Commerce  Commission  v.  Cincinnati,   New  Orleans   and  Texas 
Pacific,  167  U.  S.,  479,  493.  "43  Fed.  Rep.,  37,  44. 


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conditions  seemingly  imperative  and  certainly  sufficient  to  justify 
the  same  rate  if  openly  given,  may  lead  to  a  dozen  secret  unjust 
discriminations  which  no  rate-making  officer  would  ever  put  in 
the  published  tariff.  If  just  rates  must  be  made  by  methods  that 
violate  the  law,  because  the  public  refuses  to  sanction  their 
appearance  in  the  tariffs,  although  they  might  lawfully  be  pub- 
lished, and  the  officers  of  the  carriers  either  fail  to  recognize  the 
economic  justification  for  such  rates  or  for  other  reasons  are 
unwilling  to  publish  them,  those  whose  violations  of  the  law 
against  secret  rates  are  condoned  when  the  charges  are,  in 
themselves,  just  will  always  find  ways  to  grant  still  more  illegiti- 
mate favors  in  charges  to  themselves,  their  relatives  or  their 
friends. 

There  is  no  doubt  that  adequate  laws  against  rebates  can  be 
made  and  generally  enforced.  There  has  been  no  time  since 
1887  that,  given  a  general  recognition  of  the  correctness  of  the 
principle  expressed  in  the  law  and  an  intelligent  and  energetic 
desire  to  prevent  and  punish  its  violation,  the  practice  of  rebating 
would  not  have  substantially  disappeared.  The  law  against 
rebates  does  not  run  counter  to  an  economic  law  but,  if  the  his- 
tory here  recited  proves  the  need  of  wholesale  rates  based  on 
larger  quantities,  the  law  and  the  practice  of  rate-making  which 
does  not  admit  of  published  discriminations  in  favor  of  quan- 
tities from  (say)  five  car-loads  up  with  progressive  decreases 
as  shipments  increase,  do,  together,  run  counter  to  economic  law. 
Certainly  there  can  be  no  rebates  under  the  present  law  if  it  is 
enforced  with  intelligence  and  persistent  vigor.  But,  if  the 
economic  necessity  that  has  been  suggested  is  a  real  one,  the  rail- 
ways must  resort  to  the  practice  of  publishing  train-load  and 
other  wholesale  rates,  or  if  they  decline  to  do  so  or  public  senti- 
ment compels  them  to  refrain  or  abandon  the  practice  after 
experimenting  with  it,  the  enforcement  of  the  law  will  cripple 
American  industry  and  put  an  added  burden  upon  American  con- 
sumers. In  the  latter  case  the  more  probable  result  would  be 
the  cessation  of  any  consistent  effort  to  enforce  the  law,  as  such 
efforts  have  heretofore  ceased,  and  the  resumption  of  secret 
rate-cutting  with   all   its   baneful   and   unjustly   discriminatory 

accompaniments. 

H.  T.  Newcomb. 

Washington. 


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